The GIA and Its Very Profitable Nonprofit Lab

As the industry continues to absorb the news of Donna Baker’s departure and further thinks about the future of the Gemological Institute of America, perhaps it’s time to look at its lab’s relation to the larger organization.

In the past, the lab has been a for-profit subsidiary, but at some point in the late 1990’s it started being listed with the rest of the organization as part of its overall nonprofit structure. The lab has always been both GIA’s greatest strength and its greatest weakness.

It’s a strength, because it is hugely successful.  The good work GIA does in the education and research fields—and it still does a ton of good work (including this program)—is at least partly funded by the lab’s success.

It’s also a weakness because some of GIA’s problems over the years have been due to the lab. In 2006, GIA curtailed much of its fundraising, which is how many nonprofits earn their keep, to avoid an “appearance of impropriety” with lab clients.

If one looks at GIA’s latest publicly posted statements, the lab took in $138 million in 2011. GIA’s total revenue (which includes tuition and other income generators) less expenses was $48.3 million that year. Those numbers may have even climbed given the lab’s very successful international expansion. GIA spokesman Stephen Morisseau says that any income the institute raises is reinvested into its public benefit mission, which includes such efforts as research, education, beneficiation programs, etc. And that is a very important point about how a nonprofit works: It doesn’t have owners or shareholders who get the profits.

Is there any limit to how much business the lab can do? Probably not. One tax lawyer wrote recently: 

“In some situations, excessive unrelated business activities can also prompt the IRS to reconsider a nonprofit’s 501(c)(3) tax-exempt status. To avoid this, a nonprofit should never let its unrelated business activities reach the point where it starts to look like a regular commercial business. For instance, unrelated business activities shouldn’t absorb a substantial amount of staff time, require additional paid staff or volunteers, or produce much more income than that generated by the organization’s exempt activities.” 

The key word here is unrelated. GIA and the IRS have said that the lab’s work is “directly related to our mission and tax exempt,” Morisseau says.  No doubt attorneys—and Donna Baker was one—have looked at all this very carefully.

Still, these issues weigh heavily on any public benefit organization. Many years ago, Jewelers of America sold its trade show. That gave it a firm financial footing for the future and let it concentrate on being a trade association.

The GIA is both an excellent educational and research institution and a hugely successful business. But should it be both? Can it avoid one overwhelming the other? These may be key issues for Donna Baker’s successor. 

JCK News Director