Editor’s Note: How governance works and struggles to meet new challenges has been a consistent theme over the past few months, and four Chefs recently addressed these challenges at a meeting of science executives. This post from last October by Joe Esposito is perhaps the most incisive of the set, and well worth revisiting in this long-overdue “Stick to Your Ribs.”

Cover of "The Godfather (Widescreen Editi...
Cover of The Godfather (Widescreen Edition)

At the beginning of Jared Diamond’s magisterial  “Guns, Germs, and Steel,” the author recounts a conversation he had with a native of New Guinea. Why, the New Guinean asks, do the people of the West have so much more “cargo”? “Cargo” is his term for material wealth. Diamond’s answer is that Europe had the three elements of his book’s title on its side. With such advantages, the accumulation of “cargo” was almost inevitable.

I have often reflected on this passage when the question of the relative success of for-profit and not-for-profit (NFP) publishing enterprises comes up. Although there are some conspicuous exceptions, most of the big dogs in scholarly communications are commercial enterprises.  What is it about the for-profit world of publishing that has enabled it to become dominant over its well-intended, hard-working fellows in the NFP camp?

On the face of it, you would have to say that the dominance (measured in market share and expressed in dollars) of the commercial firms is highly improbable. Publishing is not like most other industries; the NFP sector is large and often attached to other institutions (universities, government) that sit outside the roilings of the profit motive. NEJM, AAAS, ACS, OUP, and so on — try to find the equivalent of such NFPs in the auto or consumer electronics industries.  One would think that with such a strong group of NFP organizations, there would be stronger challengers to the for-profit leaders of Elsevier, Springer, Taylor & Francis, John Wiley, and their kin. The fact is, though, that for all the prestige of some of the NFPs, this is an industry dominated by commercial entities. The presence of NFP institutions and publishers serves as an offset to the influence of the for-profit firms, but there is no question who is the biggest kid on the block.

There are various explanations offered for this, the most common of which is that the NFPs cannot compete with the commercial firms because the commercial firms simply have more money. This is not true, and it is important to understand why.

Let’s take a small university press as an example. For such a press, the prospect of competing with the likes of Springer, Random House, and Pearson is daunting. Few university presses even try, which is why there is no NFP book list in STM to compare to Springer’s, no NFP upscale trade list (political affairs, biographies of statesmen) to compare with that of Random House, no college textbook publishing that stands a chance against Pearson.  Size matters. The huge scale–the money–of the for-profits would appear to be overwhelming.

But this is the wrong way to look at the situation. Springer did not start out as a billion-dollar company, nor did Random House begin atop Wall Street. (See Bennett Cerf’s entertaining memoir “At Random” for the story of the company’s founding.)  Commercial publishers, however big they may be today, started out as the historical equivalent of two kids in a garage in Silicon Valley. There was no money; there was only drive and an editorial idea.

It is much, much easier for a NFP to get money for a start-up than it is for a commercial entity.  I invite anyone who has ever received a grant from a philanthropy or governmental agency to try his or her hand at writing a business plan and making the rounds on Sand Hill Road to raise capital. The bar is much higher in the commercial world; start-up money is hard to come by; some good ideas are not funded because of the lack of a strong management team, some good management teams are not funded because of the lack of a good idea.Stating the goals of a new company are not enough unless the goals are paired with a persuasive argument about the ability to execute brilliantly. And it is not enough to have a good idea; you have to have an idea that promises a better return on investment than any other competing proposal.  It is actually easier to get start-up money in the NFP sector than in the commercial world.

A lack of money is not what prevents a NFP from becoming the next Wolters Kluwer. Something happens, or doesn’t happen, after the seed capital is put in, and that’s why the big guys got so big.  Whether an organization is for-profit or a NFP, when it moves into the world of scholarly communications, it moves into the marketplace, where growth and success have much to do with the practical economics known as business.

Another explanation for the strong position of the for-profit sector is that the NFP world is mission-driven (which it is) and thus makes sacrifices in economic terms in order to fulfill the reason the organization was founded in the first place. This is also incorrect; it confuses mission with strategy. An organization may have a mission to save the world (actually, only a commercial firm would have such a stupid mission statement), but the issue for pursuing that mission is a matter of strategy. Strategy answers the question of “how do I get there from here?” A strategy has to be anchored in the realities of the overall business environment; if the environment grants special privileges to organizations of greater scale, then even NFP mission-driven organizations have to find a way to achieve that scale.

In my experience, too often NFPs use an appeal to their mission as an excuse for not having a more effective strategy. The real management challenge for a NFP is not the pursuit of its mission but to conduct that pursuit in such a way as to allow it to thrive in a competitive environment. To put this another way, there really is no point in whining about how big and unfair the big guys are if you resist the opportunity to compete with them.

Who really runs a NFP?  In my experience in shuttling from NFPs to for-profit firms and back, one of the distinctions to be drawn between the two classes of organizations is that commercial companies are mostly run by the CEO and (in some cases) the executive team, whereas NFPs have their center of power in their governing boards. I am making a broad generalization here, but before everyone jumps up and shouts out examples that contradict this statement, think long and hard about the various organizations with which you are familiar and ask who crafts the strategy, who makes the big decisions.  I don’t know if there is a right way or a wrong way to put together a governing board for any organization, but some boards have a different notion of their prerogatives from others.

It is not unusual for the Board of a NFP publisher to consist entirely of people doing research in the field.  This is especially true of many society publishers, where the Board is made up of members of the professional society. Occasionally someone from publishing fills one Board seat, but is outnumbered by a wide margin. The principle here is that research publishing is by and for researchers, and researchers know what is good for them. This confuses research (where only fellow researchers can make valid judgments) and publishing, which is a distinct art (publishing is not content; it is about content, a meta-service). Does a plant biologist with a toothache go to see another plant biologist?  Does a population researcher turn to another population researcher to fix the water pump on her car? It is difficult to have a reasonable discussion with people who feel this way, though perhaps thinking about what it actually means to run a publishing operation, for-profit or NFP, would help to open up the conversation.

The big mistake for most NFPs is what I call the “editorial fallacy”, the view that a publishing operation is entirely editorial in nature and that selecting the finest content will naturally lead to success.  The second big mistake is the idea that superior intelligence can solve any problem. Or maybe that’s the biggest mistake. Thus, the distinguished life scientist pronounces on how publishing operations should be run without reflecting that perhaps there is more to the game than being smart. A geneticist is not likely to lecture sociologists on their methodology, nor is a professor of comparative literature likely to offer a critique to the chemistry department, but publishing is one of those fields where everyone is an expert. There are other fields like this as well — politics, certainly: everyone thinks he or she could do a better job than the bozos in office; or the management of a sports team, a task that may very well be as complex as working in some academic disciplines.  But publishing is different in that a professor of cognitive science would most likely stop short if asked to manage the New York Yankees, but as for publishing — well, what’s so hard about that?

It is not only the day-to-day tasks that make publishing different from the research that generates its content.  No one really expects an anthropologist to know how to negotiate with a subscription agent (“I don’t want to pay 3%!”) or to install project-management software to track manuscripts through production. And when you get to digital solutions, the obvious gap between the researcher and the publisher is even greater. How to create an end-to-end XML workflow? Should we develop our own software platform in house or work with one of the growing number of vendors? But even here the questions respond well to careful data-gathering and analysis, all things that academic professionals are extremely good at.

The real problems arise when it comes to making money. Are we better off splitting this journal into two or keeping it as one? What will happen to our advertising revenue when we begin to phase out our print edition? Do we cut a deal with ProQuest or EBSCO?  What are the long-term implications of working with Google Scholar? Is Amazon our friend? Here few NFP governing boards are likely to have much experience, nor are they necessarily equipped to deal with the pace at which decisions must be made, not to mention the norm for the operating executive:  having to make a decision in the absence of complete information.

It may be governance that helps to answer the question that has troubled me for many years: Why is it that the single biggest innovation in scholarly communications in the past 20 years, the creation of arXiv, should not have resulted in an organization operating at the scale of John Wiley or Springer? This question is my personal equivalent of the New Guinean’s query to Diamond about cargo. There is little doubt that arXiv is here to stay, but it remains a niche service. If Apple could turn a small technological advance (the use of the newly developed micro hard drive as the basis for the first iPod) into a technology and media empire that now bestrides the world, why is arXiv still passing the hat? One wonders what would have happened had arXiv had a broader vision of the strategic environment it operates in. Would arXiv be bigger than Elsevier by now?  Is PLOS heading in that direction, having had the example of arXiv to learn from?

This is not to suggest for one minute that the Boards of NFP publishing entities should consist entirely of publishers. Publishers are an insular lot and, like everybody else, can make boneheaded decisions based on extrapolations from their own area of expertise. It is simply mind-boggling to think that a half-dozen commercial firms did not beat PLoS to the punch with an author-pays open access service; they even had the model of BioMed Central to learn from. When publishers go to the tenure committee in the sky, they will have to answer for having let the author-pays model get away from them.

The important thing about building a Board is to have expertise from various areas represented: information technology, research, publishing, library services, finance, marketing, etc. It is also important that the Board understands that they are there to work in the publisher’s interest.  A librarian on a Board does not represent a library’s interests; the librarian represents the publisher’s interests in the world of libraries. For a Board to be effective — to help a NFP publisher compete in the marketplace — the Board has to defend the publisher’s business interests.

What we should be asking the Boards of NFP publishers is that they be held accountable for the financial success of their publishing entities. “Success” can be defined in different ways; I would include an acceptable level of subsidy in my definition, provided that the size of that subsidy and the means to pay for it are established in advance. There should be a little bit of perspiration when someone enters the Board room, as the responsibilities are not trivial. We should ask a Board to populate itself with people who can help make important business decisions and who understand how to work with the Executive Director and the management team. Most of all, we should understand that NFPs do in fact compete with for-profits, like it or not, and the terms of that competition are the laws of the marketplace. A fuller embrace of the market orientation of the world in which NFPs and for-profits operate is the first step toward having the NFPs take on more cargo.

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Joseph Esposito

Joseph Esposito

Joe Esposito is a management consultant for the publishing and digital services industries. Joe focuses on organizational strategy and new business development. He is active in both the for-profit and not-for-profit areas.


5 Thoughts on "Stick to Your Ribs: Governance and the Not-for-Profit Publisher"

In my experience, caution is a big factor. Governing boards of established NFPs take their responsibilities very seriously and it is perhaps an awareness that they are operating outside their fields of expertise that makes them risk averse and unwilling to gamble large sums on what commercial publishers might see as safe or necessary bets.

PLOS is unusual (some would argue refreshingly so) in that it was a nascent NFP formed with the express goal of changing the status quo using a multi-million dollar grant – precisely the sort of sum a typical NFP would not bet. Moreover, the only ‘risk’ they were taking was that nothing would change (I don’t mean to make the loss of several million dollars sounds trivial; I’m simply contrasting it with the concerns an established NFP would have about the survival of the organization and its other missions).

Meanwhile, as I’ve said before, I am not at all surprised that commercial firms “didn’t beat PLOS to the punch with author-pays publishing”. It took a non-profit without an obvious profit motive to legitimize a mechanism that would otherwise have immediately been deemed vanity publishing – and still is by some.

I think what Joe says applies mostly to society publishers, and to journal publishing, but not very much to university presses and to book publishing. Consider his point about the makeup of governing boards. For one thing, many smaller presses have no such boards at all. (We did not at Penn State Press.) The larger presses do, but they are usually populated with a lot of publishing expertise. At Princeton, where I worked for 22 years, the board was chaired by, first, Harold McGraw (for 25 years) and, then, Charles Ellis (when he was Wiley’s CEO). Other publishers who served on the board were the heads of Scribner’s, Little Brown, etc. You could not have found a board anywhere with more publishing expertise than Princeton’s. As for competing with STM publishers or textbook giants like Pearson, university presses mostly do not even try. Very few presses have much of a presence in science publishing at all (Princeton is an exception), let alone in STM journal publishing where the big bucks are to be had, and what textbook publishing presses do is not at the level of introductory textbooks where the big commercial publishers concentrate but at the more specialized, higher levels (where, e.g., Princeton made a ton of money publishing in economics). Mission does matter for university presses, and that is why some presses will persist in publishing in fields like art history (as we did at Penn State) even when the marketplace becomes less able to sustain it. Finally, while initial seed capital may be easier to obtain in the non-profit sector (Mellon has been a particularly generous benefactor), the rules by which most presses operate do not give them much, if any ability, to generate investment capital internally. Usually, that is because the parent university will take a significant cut of any surplus made (as at Chicago).

A couple comments based on my experience.

I don’t know how true it is today, but I experienced a “failure to understand” a fundamental law of life in a not-for-profit corporation in the 1970s, when I was the first data processing manager for the National Sanitation Foundation. My proposals for reducing costs and/or increasing revenue were most often met with the assertion that “we can’t do that because we are a nonprofit.” It was not easy to convince some people in upper management that the only difference between a nonprofit and a for-profit business was what could be done with revenues in excess of costs. A nonprofit must use that excess for the charitable, educational, scientific, or cultural purposes for which it is chartered. It is a fundamental law of life (applying from unicellular to multicellular organisms, from bacteria to monkeys like me) that a continued expenditure of materials and energy in excess of the intake of materials and energy typically results in the death of the organism.

I have worked with the English version of a journal translated from Russian for 15 years. During that time, I have “worked for” Plenum, Kluwer, and Springer. In the “commercial” arena, some “fish” compete more successfully and grow bigger and stronger. The big fish eats the smaller fish. In my case, Kluwer ate Plenum and then got eaten by Springer. This is less likely to happen on the noncommercial side. Buyouts and mergers are more common among commercial businesses than, for example, among scientific societies, or so it seems to me.

Interesting points and good advice as to strategy and governance, as always, Joe. This is an era of incredible disruption, and in hindsight, it’s easy to blame people for failure to “think big.”

I think you’re probably understating the advantages that the for-profit publishers have had in the past in getting so big, so fast, as compared to most small non-profit publishers in terms of the incentives / potential upside, being held to a different standard of accountability to the community, raw access to capital (both the ability to use debt for leverage and attract equity investment — although more of it was private equity than venture capital — and the ability to grow by acquisition, largely both functions of the advantages in the first two categories), and eventually, of scale and the resulting access to yet more content.

There are other reasons why the for-profit organizations have had tremendous pricing power as well, tremendous market inefficiencies in how faculty and libraries (i.e., institutions) were encouraged, forced and ultimately chose to sell and buy content. Some of these inefficiencies cannot be avoided in inherently speculative processes like research and collection building. Others seem susceptible to fixing or push back by the community. I know you’re aware of these, but it’s worth mentioning them if we’re going to judge the small societies for failure to maximize growth. A non-profit driven by mission will offer goods and services that help eliminate these inefficiencies, and yes, will look to make a profit and accumulate capital to take advantage of new opportunities and as a buffer to survive through lean years and periods of transition. But I don’t think you can argue that it should or would behave in the same way a for-profit would in terms of taking advantage of its leverage and looking to maximize margins, cash flow, and growth.

The ironic thing is that the disruption going on is so extreme, it’s still anyone’s ballgame. With the emergence of the cloud and new commercial and not-for-profit platforms and services for finding / using / distributing relevant content — e.g., Google search, Facebook referrals, Apple e-books, Amazon e-books and cloud services, JSTOR as a publishing platform — there may well be a good climate for smaller society presses that want to just focus on curation and quality of content without facing a dichotomy between either selling out to the commercial folks, or give up the efficiency advantages and potential for their ideas and content to reach more people offered by scale.

I don’t think there is much of an “urgency gap” any more — the academic publishing and library community must realize that what is at stake is survival if they can’t find more efficient and better ways to take advantage of aggregation, technology and scale, and that they should tap every source of expertise (especially free advice from a good board member!) that they can to make sure they’re moving in the right direction.

This represents my own views, and not the views of any past or current client or employer.

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