The third sector: A site for criticising, not emulating, management practice

Leanne Cutcher, The University of Sydney

Mike Hudson Managing Without Profit – Leadership, Management and Governance of Third Sector Organisations, Sydney, UNSW Press, 2009 (480 pp). ISBN 9-78174223-016-0 (paperback) RRP $49.95.

In accepting his award as Australian of the Year on 26 January 2011, Simon McKeon drew attention to the important role of not-for-profit organisations in sustaining Australian society and said that we needed to ‘nurture’ these organisations. His somewhat curious call to ‘nurture’ organisations highlights the fact that not-for-profit organisations are very different from their for-profit counterparts. Recognising this difference is, as McKeon implies, important for their ongoing sustainability. Yet government policies aimed at creating greater efficiencies and accountability in the sector have been ‘encouraging’ not-for-profits to adopt the management practices of for-profit organisations.

Rather than recognising that, precisely because they are different, not-for-profit organisations are better placed, or indeed the only ones able to deliver certain services, government funding agreements require not-for-profits to embrace market models of service delivery. Managers of not-for-profit organisations are faced with the unenviable task of meeting increasingly stringent reporting targets at the same time as seeking to meet the complex needs of a range of stakeholders, while very often under the governance of well meaning but inexperienced boards and with significant numbers of volunteer staff. It is easy to argue that they, more than any group of managers, would benefit from guidance from management scholars about how to balance these competing tensions.

Mike Hudson aims to provide such a road map in his text, Managing Without Profit – Leadership, Management and Governance of Third Sector Organisations in Australia. The book is an Australian edition of Hudson’s UK text, with Australian context provided by Lyla Rogan, a consultant to the third sector. The Australian edition has sections in chapter 1 on the history and scope of the sector in Australia, throughout the book there are short sections that contextualise the broader discussion for Australian readers and additional Australian case studies have been included from Rogan’s work in the sector over many years. The inclusion of Australian cases is welcome because many management texts are US- or Eurocentric. However, Rogan’s overview of the sector in Australia draws on material that is in some cases a decade old and does not accurately reflect the current state of play in the third sector in Australia. She could have made good use of the report on not-for-profit organisations by the Australian Bureau of Statistics (2008) to provide a more up to date picture.

Many management texts are US- or Eurocentric.

As the book’s title indicates, it is aimed at addressing issues of leadership, management and governance in the third sector. Hudson, like others, uses the term to distinguish these organisations from those operating in the private sector or public organisations. For Hudson, third sector organisations share two common characteristics: they do not distribute profits to their owners; and they are not subject to direct political control (p. xvii). There are some problems with this definition. Given the increasing control of some third sector organisations through government funding agreements, it is hard to argue that they are not subject to direct political control. For example, the Howard Government (1996–2007) made it explicit that charities receiving government funding would have their funding withdrawn if they made statements criticising government policy (Hamilton & Maddison 2007).

There are of course third sector organisations that receive no government funding, so Hudson’s definition holds for them. Somewhat surprisingly though, he argues that many of these organisations—in particular co-operatives, social enterprises and friendly societies—are not third sector organisations because they ‘occupy a position that overlaps with the private sector’ (p. xvii). As someone who has spent many years researching credit unions—a form of financial co-operative—it seems clear to me that they should be considered third sector organisations. What makes credit unions (as well as mutual building societies and friendly societies) such distinctive financial service providers is precisely that they do not return profits to shareholders. The owners of the credit unions are their members and all profits are returned to the members through decreased fees and, ideally, improved services. Credit unions have continued to deliver financial services in many remote and rural communities long abandoned as unprofitable by the major banks. It is on this point of differentiation that ABACUS, the peak body representing mutual building societies and credit unions, has been arguing that they represent a very real alternative to customers disenchanted with the increasing fees of the major retail banks.

The definitional difficulties raised by Hudson’s book highlight the diversity and distinctiveness of the third sector. This diversity and distinctiveness means that any attempts to transplant management practices and strategies from for-profit organisations are unlikely to deliver on their promises. Hudson acknowledges this when he writes that ‘while general management theories bring great benefits, they are of limited value unless they are tailored to address the critical cultural and organisational features of third sector organisations’ (p. xix). I would go further and argue that the third sector offers management scholars an opportunity to criticise theories of management and organisation and that third sector organisations are rich sites offering empirical evidence of alternative ways of managing organisations.

The third sector has grown rapidly over the past decade.

The Productivity Commission’s recent research report, the Contribution of the Not-for-Profit Sector (2010) highlights the rapid growth of the sector over the past decade: it now contributes more than 4 per cent of GDP (just under 43 billion), with nearly five million volunteers contributing an additional $14.6 billion in unpaid work. The report also highlights important differences between this sector and the government and for-profit sectors, differences that support my argument that third sector organisations offer unique and valuable sites for management inquiry. In contrast to Hudson’s problematic definition, the Productivity Commission offers an excellent starting point from which to appreciate just what makes this sector distinct (and by implication worthy of research). The report’s authors write:

NFPs are driven by their ‘community purpose’; which may focus on their members, targeted groups in the community, or, more broadly the ‘common-good’ [sic]. In production, NFPs care about how (process) as well as what (activities) they do. And in management, those making the decisions often care deeply about the control they have over both process and choice of activities. It is this combination of community purpose and concern about process and managerial control that characterises NFPs behaviour (2010, p. 15).

It is exactly this combination of broad purpose (beyond simply profit making) and concern about process and control that makes third sector organisations obvious sites for critical management studies. Yet, very little critical research is undertaken into third sector. Most management writing on not-for-profits begins with the same premise that Hudson adopts in his book: ‘managing third sector organisations is subtly different from managing in the private or public sector’ (p. 16, emphasis added). For Hudson, differences lie in the way transactions are conducted in the sector, with the connections between service users and funders being weak (p. 16). He argues that because the connections between the provision and payment of services is weak or non-existent then third sector managers have to bridge the gap between funders and service users (p. 17–18). This, he argues, requires them to be more responsive, seek more feedback and be more decisive.

I would argue that the bigger difference shaping service provision in the third sector is that they do not have to distribute profits to shareholders but rather return those profits (because third sector organisations need to be profitable) to their members. It is precisely the way third sector organisations are managed and their focus on member service (including contributing to the ‘common good’) that has lead to innovative ways of managing and service delivery. Returning to my example of credit unions, Traditional Credit Union, a financial services minnow, is delivering on corporate social responsibility (CSR) measures in ways that see them consistently win national diversity awards and has them engaging in creative partnerships with one of the large retail banks to deliver financial literacy programs to Indigenous people living in remote communities. What they are doing is substantially, not subtly, different to their large for-profit counterparts, and if there are lessons to be learnt here about management process and practice they come from Traditional and not from Traditional emulating the CSR practices of the large retail banks.

It’s not that the third sector has nothing to learn from the for-profit sector.

Hudson’s book makes only a passing reference to corporate social responsibility (p. 12), where he links it to strategic partnerships later in the book. Yet, it is a long term and deeply entrenched commitment to CSR that sets third sector organisations apart. Rather than ignoring the issue, a book on managing in the third sector should reflect on why not-for-profits are better placed to deliver on CSR because for them it isn’t aimed at improving their reputation, but a key part of the way they manage their engagement with the communities they serve. Leading research in strategic management encourages firms to recognise the interdependence between their business and the external social impacts (Porter & Kramer 2006)—third sector organisations have long recognised this connection.

Hudson’s book does little more than point managers of third sector organisations to some of the key frameworks and concepts in management studies today. There is very little, if any adaptation of these ideas, and no critique of management theory. It is taken as given that these ideas work in for-profits and, therefore, will benefit third sector organisations. This is the wrong assumption on which to base the book. Management theories need to be held up to the harsh light of organisational practice. When they don’t work it might be because they were unworkable. This may seem to go without saying, but a study by Ferlie (1992) showed that when managers of small to medium sized public sector organisations adopted a classical approach to strategic planning and it failed to deliver results, they didn’t question whether the approach was appropriate for their kind of organisation. Rather, they blamed themselves and their organisational structure. If they had had the opportunity to review the strategic management literature, which advocates a much more emergent and iterative approach to planning, they might have seen that the failure of a planned approach to strategy lay not with them, but with the management theory. Hudson’s book does not provide this kind of necessary critique of some of the dominant management models.

It’s not that the third sector has nothing to learn from the for-profit sector. But learning needs to be a two-way street: some of our best managed organisations are in the third sector. Third sector organisations must be wary of losing what differentiates them from their for-profit counterparts by assuming that models from mainstream management theory can be rubber-stamped on to their organisations.


Australian Bureau of Statistics 2008, Not-for-Profit Organisations, Australia, 2006–07, Cat. no. 8106.0, Australian Bureau of Statistics, Canberra [Online], Available: [2011, Feb 10].

Ferlie, E. 1992, ‘The creation and evolution of quasi markets in the public sector: A problem for strategic management’, Strategic Management Journal, vol. 13, no. S2, pp. 79–97.

Hamilton, C. & Maddison, S. (eds) 2007, Silencing Dissent: How the Australian Government is Controlling Public Opinion and Stifling Debate, Allen & Unwin, Melbourne.

Porter, M.E. & Kramer, M.R. 2006, ‘Strategy and society: The link between competitive advantage and corporate social responsibility’, Harvard Business Review, December, pp. 78–92.

Productivity Commission 2010, Contribution of the Not-for-Profit Sector, Research Report, Productivity Commission, Canberra [Online], Available: [2011, Feb 10].

Leanne Cutcher is Senior Lecturer in Work and Organisational Studies in the Sydney Business School and Managing Editor of the Australian Review of Public Affairs. Among her current research projects is a study of the potential for credit unions as co-operatives to offer an alternative model of work, organisation and management. Her interest in co-operatives led to her appointment as the Deputy Director of the Centre for Co-operative Studies.

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