Tuesday, February 24, 2009

Moscow Conference: How Does a Nonprofit Become Trusted?

Here's a talk Ken Berger gave last week in Moscow about the importance of trust, accountability and transparency in the nonprofit sector. The slides are in Russian but if you click below the video, you can see them in English!

And here are the corresponding slides in English:

Monday, February 16, 2009

A Scary Finding on Outcome Measurement

Back in December 2008, I made it clear that Charity Navigator intends, over time, to report on charity's outcomes (see blog entry - A Measure of Outcome). As a first step down that road, we have been on a "listening tour" that includes researching existing tools that may help us in developing our system. To that end, we have identified over 50 organizations that have at least something to say on the matter. We are culling through them with the hopes that we can find components that are relevant. Our goal is to develop a measure of outcomes that provides meaningful information for charity donors (our users).

We have been testing out what information charities are currently compiling in the area of outcome measurement. We also intend to use the information to help us in developing our system. If there are some universally agreed upon outcome measures in a particular category of charities, it could help inform us on good standards. We assumed that most charities have SOME system of evaluating their outcomes. However, you know what they say when you assume. Suffice to say, you can end up with a bad ending! So far, less than 10% of the charities we have polled have provided us with information in this area.

I recently met with a colleague who funds organizations who can provide him with evidence of a good system of measuring their outcomes. He is getting similar results. The scary reality, he suspects, is that most charities (the overwhelming majority) have not even taken their first step down the outcome road. A couple of other experts I have bounced this around with have corroborated our findings.

I know from my many years of running charities that day-to-day survival mode is often the overriding focus and concern. In the current economic climate that reality has only intensified for most charities. So the lack of focus on outcome measurement is not likely to change any time soon, unless there are outside forces that demand it and resources that facilitate the process. We continue to assume that the larger agencies may be compiling this information, but may be reluctant to make it public. Even if this is true, only 4% of all charities have annual revenues in excess of $10 million. So our suspicion remains that the vast majority of charities are doing slim to nil in the area of outcome measurement.

I think that the experts, foundations and charity advocacy groups are going to need to educate government policy makers and the general public about the significant importance of publicly available, outcome measurement information before this situation will change. All grants, whether from government, foundations or corporations, should include a percentage to fund outcome measurement.

Why is this so important? As I noted last week (When Can Donors Trust a Charity?), I believe that an outcome driven culture is vitally important for a charity to be at its best and to be trusted. With all of the scandals and lack of confidence in charities, objective data will become more and more important for the public's perception of a charity's ongoing legitimacy. In such a climate, it's scary news that most charities probably are not measuring and documenting their outcomes.

Nonetheless, we are going to continue down this road and implement an outcome measurement system once we are confident it contains the right elements. We will also be a voice for the importance of outcome measurement to whoever will listen! However, I now anticipate that whenever we begin to evaluate charities on outcomes (probably no time soon), most will not do well, if for no other reason than that they are not documenting what they are doing. I hope I am wrong and will not let assumptions get in the way of the outcomes!

P.S. My colleague Vincent Bogucki here at Charity Navigator observed the following about all of this:
"Socrates made the statement at his trial, 'The unexamined life is not worth living'. Socrates freely chose death over life without measuring outcomes. Charities may have that choice forced upon them."

Monday, February 9, 2009

When Can Donors Trust a Charity?

Charities have gotten a bad reputation thanks to the scandals at some of the larger charitable institutions. So what qualities of a charity can inspire your trust? The definition of trust in Merriam-Webster online is as follows: 1 a: assured reliance on the character, ability, strength, or truth of someone or something b: one in which confidence is placed. I think each of the key words in these definitions can be helpful in identifying the qualities of a trustworthy charity.

Here are the questions I think need to be addressed by a charity to answer the question of their trustworthiness:

1. Character - What is the character of the leadership, especially the CEO, like? Do they show evidence of honesty and integrity? Do they have the style of a servant leader? Do they have a set of core values that exemplify good character for a charity leader?

2. Ability - Does the organization show evidence of an outcome-driven culture? Does it show the public very real results that demonstrate that it is client/mission driven? Is the charity actively engaged with volunteers, donors, other nonprofits, the business community and government?

3. Strength - Is the charity financially strong? Does it have its eye on the money and maintain financial health as reflected in Charity Navigator’s measures of financial efficiency and capacity? How does the charity answer our Six Questions to Ask Charities Before Donating?

4. Truth - Does the charity evidence honest and open communication with all audiences – clients, funders, staff and the general public? Does it have a willingness to acknowledge not just the accomplishments, but the failures and challenges? Does the organization evidence transparency and accountability in its actions? For example, does it have a whistle blower policy? Does it review executive compensation in an objective manner?*

5. Confidence - Does the leadership know where the charity needs to go and how it needs to do it? As noted in last week's entry - Advice to Charities in Hard Times - the CEO needs to provide the vision, hope and passion for the mission to lead the organization. This is not just a recipe for the hard times, but all the time.

If the answers to the majority of the questions posed above are positive, I believe donors, volunteers and the public at large will progressively develop more and more faith in the organization. As the authors of Forces for Good would say, individuals will become "evangelists" for the charity because of their faith in what they see in the actions of the organization in all of the elements noted above.

THAT is when a charity can be fully trusted!

*Note: Charity Navigator intends to begin to document suggested practices, which help answer questions that reflect transparency and accountability, starting later this year.

Monday, February 2, 2009

Advice to Charities in Hard Times

This past week I was asked to speak before a group of charity leaders on what they should be doing to weather the tough economic times. My advice was clustered into two categories - margin and mission. The margin side is all about financial matters. The mission side of the equation is about actions to be taken that relate to the culture, values and overall approach of the charity.

On the margin side of things, the suggestions were as follows:

  1. Contingency budgets - a charity should be proactive in planning for potential cuts by developing budgets that assume at least a 10% and possibly up to a 30% reduction in funding. In this way the charity will be as well positioned to react when funders call with the bad news.

  2. Watching the money - every charity should hold a monthly meeting with key staff to review revenues and expenditures. Any variance of 10% or more should be carefully analyzed and action steps spelled out to address problems. A cash flow analysis should also be conducted to assure that there are adequate resources available for day-to-day operations. If there is an over reliance on credit to make payroll for example, the charity should be working to reduce it and not waste money on interest payments.

  3. Mergers and acquisitions - as we have suggested in the blog entry - Good News in a Bad Economy - this may be an opportunity for the charitable sector to finally see some improvement in overall efficiency. Charity leaders should be keeping an eye out for opportunities to merge with or acquire other charities that are struggling the most. When CEOs retire (it has been predicted that as many as 50% will over a 5 year period) it may be a good opportunity to have these discussions with that charity's Board leadership.

  4. Capital projects - should be put on hold unless you are already well down this road.

  5. Working Capital Ratio - if a charity has not done it yet, now is probably too late, but the best charities have a year or more of liquid assets in reserve to carry them through the down times.

On the mission side I spent time discussing a good book that I just read which captures much of what I believe the best charities do. The book is called Forces for Good. Through an intensive research process (interviewing charity CEO's, experts in each category of charities and many others) they drilled down to 6 practices of high impact nonprofits. Two are internal to the nonprofit's operations and four exemplify how the nonprofit relates to the outside world. The two internal qualities are adaptation and shared leadership. I believe these qualities are similar to what I described in my blog entry - Core Values are Not Just a Sign on the Wall. Adaptation is similar to a continuous improvement process and shared leadership to a team approach. In addition to these core values, I would submit that there are two additional internal approaches that are also critical to the best charities - an outcome driven culture and a focus on maintaining financial health. An outcome driven culture is one in which the charity sets clear outcome goals, gathers data on how they are being achieved, changes behavior based on the data and rewards those who achieve the best outcomes. Maintaining financial health is spelled out in the margin section of this blog entry, as well as in the other measure we review at Charity Navigator. The agency must have a culture where financial health is valued and encouraged rather than the hostility it receives from some (see Bad Charities with Heart).

On the external side, the authors of Forces for Good indicate the organization should be collaborating with other nonprofits, advocating for appropriate policies with government, working with businesses and engaging individuals. In essence, the charity needs to be an active participant in every sphere of influence. All of these observations make sense to me and I urge you to read the book to get the full lowdown on all of this. The one area where I somewhat part company with the authors is when they turn to financial measures of performance, but that is for another day.

My concluding advice to the charity leaders was that they will play a pivotal role in how their agency will fare in these hard economic times. In spite of the challenges and the fear of how bad things will get, they must be able to instill hope, vision and passion about the value of the charity's work. They also need to take care of themselves and not burn out on stress and worry. To get through these times, all of us need to do the best we can each day and then go home and recharge for the next day. "One day at a time" is very sage advice, especially when times are hardest.

P.S. Thanks to a post by Lucy Bernholz on Twitter, I see that a colleague named Michael Seltzer has also just written something helpful on the topic called - Strategies for Hard Times: How to Downsize a Nonprofit.