One of the most important sectors in the Australian economy is contemplating its strategic direction. Not-for-profits, the unsung heroes of the Australian economy and society, have suffered from their unfortunate name tag as 'The Third Sector', but now are being actively courted by both governments and the private sector.

Not-for-profits have been less prominent in Australia than in many overseas countries - especially in the developing world - but they have played a crucial role nevertheless. The last official study in 1995 by the Industry Commission put the number of not-for-profit organisations in Australia at 34,000, employing 600,000 people or some 7 per cent of the workforce. The size of the sector has escalated since that time. There are also some 1,000 United Nations affiliated non-government organisations (NGOs) active in this country.

As part of the wave of corporate social responsibility sweeping Australian companies, not-for-profit organisations are being sought as partners in these endeavours. These partnerships give companies a low-cost and highly effective point of entry to social and community fields where they can make a real street-level contribution.

A company's image and brand is also enhanced by partnering with an ethical and respected not-for-profit, and results to date show the motivation of their own staff increases exponentially.

In the public sector the buzz word is also 'partnerships', and government agencies are extending contractual arrangements with not-for-profits in almost all corners of the public service. This enhances service delivery, given the knowledge and experience that the not-for-profits have accumulated, not to mention the compassion and sensitivity which characterises their mission and operations.

This is not new of course. My grandfather, who was the senior official in the Commonwealth Department of Social Security and founded the Rehabilitation Service across Australia, used to say, "No government agency can match the effectiveness of voluntary bodies in addressing the needs of the unfortunate or underprivileged".

In those days the emphasis was on welfare bodies but today governments are developing partnerships with not-for-profit organisations in fields such as health, the environment, education, training and employment.

All of this creates new leadership challenges for the not-for-profit sector, which has always struggled with revenue raising, undercapitalisation, and recruitment and retention of suitable staff in a very tough environment prone to underpayment and burn-out.

Since people who work in not-for-profits take pride in the service they offer and are frustrated daily in the lack of resources to meet the need they perceive in the community, they also require very careful human resource management tailored to their unique situation. Leading a not-for-profit organisation always involves an almost daily dose of crisis management on many fronts.

However, in the new era, leadership of not-for-profits also faces a different order of challenges.

These include negotiating the new partnerships with private and public bodies, establishing relations with a much broader range of stakeholders, handling the intricacies of contract management, identifying the levers which have to be pushed to obtain contracts and funding, and even lobbying. Then there is establishing a comparative advantage, niche and brand management. Sound governance models also have to be adopted given the scale of operations, risk, and accountability requirements in the new partnerships.

All these are aspects which used to be anathema to most of these organisations.

There are dangers for not-for-profits in this new world - the obvious one being that, if they are not careful, they may be exploited and lose their distinctiveness and raison d’être. Particularly in the government interface it is too easy for a not-for-profit organisation to sell its soul, tarnish its credibility, and become so dependent on government contracts that it comes to resemble a public bureaucracy, tailoring bids and behaviour to suit the wishes and language of the bureaucrats.

It may also begin to channel too much into executive salaries and administrative overheads through a rationale of meeting the demands of the donor.

Then, if they are not careful, they can become complicit in the disturbing trend in Australia where government departments regard 'citizens' as simply 'clients'.

So leaders of not-for-profits are engaged in a balancing act of the highest magnitude. The lobbying capacity of a not-for-profit organisation might be jeopardised if it becomes too dependent on the government hands that feed it, or too closely identified with a company's agenda.

It was to help address these challenges that the University of Queensland Business School, through its Executive Education Program, conducted a recent course on leadership for the not-for-profit sector. The course was oversubscribed and will be repeated soon.

The participants were all current and future CEOs of not-for-profit organisations. They were keen to begin the design of a strategy for the sector, and have laid out the foundations.

The central challenge is to achieve more coherence across the sector - speaking with one voice and sharing many services - to achieve greater grunt and more potent advocacy.

However, all were unanimous that they did not want to create a stifling peak body which might attempt to homogenise a sector whose strength lies in its diversity and commitment to identified causes.

Leadership in this context will share many of the characteristics found in other settings but it will be a more delicate task. As CEO of The Smith Family, Elaine Henry, told the participants, "Leadership is like a tea bag; you don't know how good it is until it is in hot water".

Australians are great at responding to challenges, as our proud history reveals. The challenge of the hour is to convert our safety nets into trampolines, bouncing the less fortunate back into productive lives.

In accepting this challenge Australians are beginning to rediscover the two fundamental values that established this nation: 'a fair go', and 'have a go'.

We need to blend these twin aspirations of equity and enterprise to build a strong community and economy.

Not-for-profits can become the First Sector in this mission given the right strategic leadership.

Professor Kenneth Wiltshire AO is the J.D. Story Professor of Public Administration at the University of Queensland Business School. He has recently served as Australia’' representative on the Executive Board of Unesco and is an Honorary Trustee of CEDA.