Nonprofit organizations are exploring innovative ways to replace revenue as government funding shrinks and competition for private funding intensifies (Seitanidi and Ryan, 2007). The literature examines the variety of sources of nonprofit revenue, from earned sources to contributed sources (Chang and Tuckman, 1994; Krawczyk et al. 2017). Among the four primary sources of contributed revenue (individuals, governments, foundations and corporations), corporate support has increased (Austin and Seitanidi, 2012). In particular, there is evidence that, compared to other organizations in the nonprofit sector, arts and culture organizations are open to pursuing corporate support as government funding declines (Daellenbach et al. 2006; Gainer and Padanyi 2002; Kerlin and Pollak 2011). Consistent with this logic, corporate sponsorship of arts and cultural organizations is growing (IEG, 2018).
Arts and culture nonprofits, however, can put their reputation at risk when engaging in corporate partnerships. A nonprofit organization’s image can be tarnished due to the corporate partner’s potentially unethical business practices or to conflict between the corporate partner’s image and the nonprofit’s mission (Al-Tabbaa et al. 2015; Andreason 1996). How do managers of nonprofit arts and culture organizations make decisions around the use of corporate support when that support might compromise one of their most valuable resources?
Our study examines the challenging decisions faced by these organizations as they seek to protect their reputation and fund their mission. We use data from Southern Methodist University (SMU) DataArts, formerly DataArts and Cultural Data Project (CDP), which thousands of cultural nonprofits use annually to report their finances and programs.
Partnerships Between Arts Organizations and Corporations
Unlike the nonprofit human services sector, which has traditionally relied greatly on government funding, the arts sector is heavily supported by non-government funding sources such as individuals, foundations and corporations (Kerlin and Pollak, 2011). Therefore, it is not surprising that arts and culture organizations regard corporate support as a viable substitute for government funding and individual donations in the face of losses during economic downturns (Leclair and Gordon, 2000).
Partnerships between nonprofit arts and culture organizations and corporations have become important for both parties, as a marketing tool for corporations and as a funding source for nonprofits (Lewandowska, 2015). Corporations sponsor arts and culture organizations to enhance their public image and promote their products and brands. By sponsoring a nonprofit, a corporation can increase brand awareness and promote its brand to nonprofit stakeholders. Moreover, by associating its brand with that of the nonprofit, a corporation can benefit from that organization’s brand equity to improve its own brand image (Colbert et al. 1994; O’Hagan and Harvey, 2000). However, only 8.4 percent of the revenues of arts and culture nonprofits in the United States come from corporations (National Endowment for the Arts, 2012). This figure suggests that while corporations are willing to support arts and culture nonprofits, the organizations themselves view such support as risky.
A nonprofit contributes its reputational resources to the partnership, which puts them at risk. Thus, as managers consider the risk–reward trade-off of the partnership, they weigh the risk to their own resources (i.e., reputation), the return they expect from the partner’s resources and the alternatives to those resources. Partnership research has demonstrated that compatible partners are less likely to perceive risks in the partnership (Tsarenko and Simpson, 2017). This partnership perspective points to organizational stability and partner compatibility as relevant factors influencing a nonprofit managers’ decision-making process for accepting corporate support.
The value of the nonprofit’s reputation factors into its decision to engage with a corporate partner. Reputation is a particularly valuable resource for nonprofit organizations, as they need it to attract essential resources, such as donors, clients, volunteers and employees (Padanyi and Gainer, 2003). Given the importance of reputation to the nonprofit, we expect that these organizations will not risk their reputation under stable conditions.
Therefore, we expect that arts and culture organizations’ receptivity to corporate support will decrease when they have an increased sense of organizational stability.
We examine three conditions of organizational stability.
Based on resource dependency theory, scholars propose that organizations faced with the loss of government funding or with a low level of government support actively search for other types of income (Eikenberry and Kluver, 2004).
At the same time, those organizations that are able to stabilize government partnerships no longer need to actively pursue corporate partners that carry reputational risk.
Our first hypothesis is that government funding is negatively associated with corporate support.
Our study shows that the organizations in our sample tend to have greater corporate support when they have less funding from government partners. Hence, the level of government funding in arts and culture organizations can influence receptivity to corporate support.
Less financially healthy arts and culture organizations tend to actively seek out alternative sources of revenue, such as corporations (Murray, 2010).
On the other hand, when an arts and culture organization is financially healthy, it does not have the motivation, or the resource shortfall needed to seek corporate support (Austin and Seitanidi, 2012).
Our second hypothesis is that financial health is negatively associated with corporate support.
The results indicate that increasing equity balance is negatively associated with corporate support.
An organization’s ability to survive over time and maintain stable operations has been shown to be positively associated with its reputation (Froelich et al. 2000; Krawczyk et al. 2017; Trussel and Parsons, 2007).
On the other hand, new nonprofit organizations need time to gain experience working with donors and to build credentials among donors so as to achieve name recognition (Trussel and Parsons, 2007), and thus are less protective of their reputation and more concerned with obtaining financial support in order to survive.
Our third hypothesis states that operating experience is negatively associated with corporate support.
Results show that as arts and culture organizations age, they tend to pursue less corporate support.
Arts and culture nonprofits are increasingly engaging in behaviours that indicate a market orientation (Gainer and Padanyi, 2002; Macedo and Pinho, 2006), such as relationship marketing and direct marketing to build long-term relationships with donors and patrons and to acquire the resources necessary to continue fulfilling their missions (Rentschler, 2002). Gainer and Padanyi (2002) conclude that organizations engaged in more marketing activities are more likely to develop a market-oriented culture internally, which is compatible with business philosophy (Barksdale and Darden, 1971).
The mutual appreciation that marketing creates organizational value breeds compatibility among nonprofit organizations and corporations. In addition to a mutual emphasis on marketing generating partner compatibility, the very emphasis on building the nonprofit’s brand is likely to increase its visibility as a viable partner.
Our last hypothesis is that marketing emphasis is positively associated with corporate support.
Our study shows that when nonprofits increasingly emphasize marketing, they are culturally more compatible with corporate partners, as corporations see value in marketing efforts, while donors want nonprofits to spend donations on program development and execution. We find that when arts and culture organizations actively engage in marketing activities, they subsequently gain greater support from corporations.
Implications for Management
There is some research suggesting that partnerships between corporations and nonprofit organizations are complex and difficult to create and manage (Austin and Seitanidi, 2012; Gazley and Guo, 2015; Osborne, 2000). Our work is at the crossroads of this tension, providing insight into the motivation for arts and culture organizations to seek out corporate support but also defining the decision points that lead managers to pursue more or less of this type of support.
Our results suggest that nonprofit managers should consider a greater marketing emphasis if they want to increase compatibility with potential corporate partners.
While conventional knowledge takes the corporate perspective that corporations seek partnerships with large, reputable nonprofit organizations (Turgeon and Colbert, 1992), our study provides additional explanations for these partnerships by considering the arts organization’s receptivity to corporate support. By taking into account factors that influence an arts organization’s decision-making related to corporate support, our study indicates that corporations should not limit their partners to established arts and culture organizations when considering which nonprofit to sponsor. Younger, needier organizations may be more accepting partners for corporations to support and build a long-term relationship.
You can also browse our abridged research articles here.