Of the 20 largest nonprofit organizations in the United States, 16 operate within a structure that is rare outside the nonprofit world: the federation. A federation is a network of local affiliates that share a mission, a brand, and a program model but are legally independent of one another and of the national office.¹ Many of the best-known nonprofits—from venerable organizations such as the National Council of YMCAs and the Girl Scouts of the USA to relative newcomers like Habitat for Humanity International and the Make-A-Wish Foundation—operate as federations (Exhibit 1).

Federations don’t always work as they should, however, and some of them have run into trouble. Donors—public and private—are giving less and becoming more mobile, and this has promoted intense competition for money among affiliates. Donors are also making more demands to see results, leaving federations with the difficult task of persuading vast networks of affiliates to agree on how to evaluate and improve their performance. Meanwhile, controversies at the United Way of America (a network of more than 1,400 local organizations that raise money to address community problems) and at American Red Cross Disaster Services have underscored the risk of sharing a brand...