Wednesday, September 30, 2009

Ken on Fox Business News

Ken Berger, author of this blog, was on Fox Business News today as part of a panel on philanthropy that included Howard Husock, Vice President of the Manhattan Institute and Steve Goldberg, author, Billions of Drops in Millions of Buckets and member of Charity Navigator's new Advisory Panel. They discussed whether we need a stock market for charities.

Monday, September 28, 2009

NPR on CEO Compensation Survey in Chronicle of Philanthropy

The results of this year's nonprofit executive compensation survey by the Chronicle of Philanthropy are discussed in this 5 minute National Public Radio segment. I am one of the people quoted.

Monday, September 21, 2009

Board Governance of Nonprofits

Below is a reprint of an article I wrote that was published recently by Charity Channel.

After many years of working in the trenches of the nonprofit sector, in June of last year something extraordinary happened to me. It was as if I was grabbed by the collar and lifted up to a high mountain, where for the first time, I got to see all the nonprofit “trenches” people work in. I have learned a tremendous amount this past year, in addition, I have been given an opportunity to voice what many think but often can not say because they are on the inside of the sector. Charity Navigator takes no money from any of the charities we evaluate. As a result, we have more latitude than many to speak from the “outside” less restrained by vested interests and political maneuvering.

So here let me speak plainly about some of the dirty little secrets about many nonprofit Boards and how they govern – they often do it badly and in some cases they do not govern at all. On the one hand (more typical in my experience), you have uninvolved Boards (no governing at all). They abrogate almost all governing responsibility to the CEO who is usually more than happy to take the power and run with it. The CEO then is largely unaccountable and, not surprisingly, we see all kinds of scandals in the sector as self interest trumps mission. At the other extreme, you have micromanaging Boards. In these tough economic times, I think this type of Board is on the rise. The agency starts running deficits and suddenly the Board begins to awaken from its slumbers and questions everything. They can then swing to getting into agency minutia that is inappropriate. They often can place unrealistic expectations on the CEO and staff leadership to raise funds in this difficult environment, when they are unwilling to play the critical role of helping to make it happen. Another variant of this (with or without deficits as the instigator) are the arm chair Boards who believe that, since they made a lot of money in the for profit sector, they need to teach the idealistic and na├»ve nonprofit leaders how to manage. A good antidote to that would be to have every Board member read Jim Collins supplement on the Social Sector for his book – Good to Great.

In one sense, for profits and nonprofits are like comparing apples to steak, they are both the same in one sense (organizations or food) but not even remotely similar in certain fundamentals. It is true that there are plenty of valuable skills that for profits and nonprofits can learn from each other, but the hubris of some Board members to assume that for profits have all the answers, is quite appalling.

So whether it is the fault of the CEO or the Board members themselves, the bottom line is that many nonprofit Boards are an unmitigated disaster. So much for the problems, now what is to be done about it? It gets us to Charity Navigator’s plans for modifying our rating system of evaluating nonprofits. We believe that for an individual to become a wise social investor (a donor with their eyes wide open); they need to consider three components when looking at a nonprofit (by implication the nonprofits should be managing and focusing on all of this!):

1. Financial health – what Charity Navigator currently evaluates (see our web site for more information on this at http://www.charitynavigator.org/). We encourage you to go over these matters with your Board and develop a dashboard where you benchmark your financial performance against standards such as ours.
2. Accountability – measures of transparency, governance and management best practices are encompassed here. A good resource for thinking about this (another document to give your Board) was developed by the Nonprofit Panel and is called Principles of Good Governance and Ethical Practices, they also now have a workbook to help you implement all of them).
3. Outcomes – more precisely outcome indicators and other evidence of nonprofit high performance. Every nonprofit needs to implement a performance management system that includes meaningful outcome indicators. A good place to learn about these matters is the Center for What Works. Another great resource is the Alliance for Effective Social Investing (http://www.alleffective.org/). If you go to the resource page you can find a tool that measures the potential to create social value. Test your organization against these standards to get an idea how you are doing in this regard. Also you can subscribe to my blog (http://www.kenscommentary.org/) where we are hosting a forum about outcomes.

A good, effective and high performing Board should be fully engaged in the development of a theory of change process to laser in on what truly matters for the nonprofit to be effective. The key components of their ongoing oversight should include the three measures listed above. However, the fundamental starting point of all of this is those of you who are reading this, the nonprofits management leadership. You are the ones who must have the integrity and ethos of transparency. In other words, if you do not support and encourage the Board to become actively engaged, it will not happen. That is a critical weakness of our sector. If the staff leadership is unethical, everything else can fall apart. So the most critical job of the Board is to hire an ethical CEO who believes in the three components listed above.

Of course, you do not get to hire the Board, so once the agency has the right CEO doesn’t mean the problems of poor Board governance have been resolved. As Jim Collins would say, one of the first steps to developing a great organization is to get the poor performers off the “bus” and recruiting high performers to get on. So a critical role for the good CEO is to help in Board recruitment and training to make this the case for the Board.

At the end of the day, as the emphasis on measuring meaningful nonprofit performance grows, I think one of the longer term consequences will be an improvement in Board governance. Why? Because I believe that poorly governed nonprofits are far more likely to have poorly performing programs. As the movement calling for performance measurement grows and becomes the gold standard for funding, poor performing nonprofits will wither on the vine. Charity Navigator will be there to chronicle and evaluate the good, the bad and the ugly. We also hope to be there as a critical friend to you, on the journey to higher performing nonprofits and a better world.

Monday, September 14, 2009

Tris Lumley on Outcomes - Open Forum Participant

Tris Lumley is Head of Strategy at New Philanthropy Capital (NPC) in London, UK. NPC describes itself as "an organisation that enables charities and funders to do good, better. Our mission is to help make effectiveness central to how charities work and how funders give."

Tris has led the development of NPC’s framework for charity analysis, published in the 2005 report Funding success, and the development of NPC’s framework for analysing campaigns, published in the report Critical masses. Tris has also co-authored a number of reports within the community sector, on child abuse, adult and child refugees, and older people. He is a member of the Charity Commission’s SORP Committee and the ImpACT Coalition.

Before joining NPC, Tris worked in consulting and research, first at Deloitte Consulting and finally at FreshMinds. He gained MA and MPhil degrees at St John’s College, Cambridge, in Natural Sciences and the History and Philosophy of Science.

Tris can be reached at tlumley@philanthropycapital.org.

Q: Should charities be assessed on their use of outcomes?

A: They should, and they must. We believe that a charity should measure its outcomes, because it will equip the organisation to manage its outcomes better. It’s possible always to deliver the best intervention purely by luck (without checking on its results) but it’s unlikely. When a charity is measuring its results, it has data on which to base reviews of its work, and therefore to adjust its approach accordingly. We also believe that a charity must measure its outcomes because of the privileged status it holds. A charity exists for the benefit of the people it’s trying to help. It has privileged status because of this, which sets it apart from for-profit companies or government agencies that do similar work. In order to demonstrate that it does deliver benefit to the people it’s supposed to, and crucially to demonstrate that as much benefit as possible is being delivered, the charity must measure its outcomes for those beneficiaries.

So charities should measure outcomes because the practice will make them better charities. And charities must measure outcomes because their privileged status relies on a claim about the benefit they’re creating.

Ken Berger & Robert Penna Comments: We agree with Tris’ analysis, but would add two additional and related reasons in support of charities using outcomes. The first is that these charities do indeed hold a privileged position: they not only act as trustees for the funds their investors give them, but, because of their tax exempt status, they are effectively subsidized by the rest of the taxpaying public whether or not they receive government grant money. In recognition of this dual support, charities have a responsibility to show something beyond rhetoric as evidence of the beneficial use to which these funds have been put. What these investors - philanthropies, individual donors, and government - don’t want is to see their money wasted, particularly on programs that don’t work. This is particularly true in tough economic times when everyone is carefully watching what they spend. Reliable outcomes are virtually the only guarantee of the effectiveness donors deserve. Our second point, a corollary of the first, is that in seeking new or additional funding, charities again owe something more than rhetoric and assurances of commitment and hard work. Prospective donors should have information at hand upon which they can make an informed social investment, a giving decision, in other words, made with their eyes wide open. Of the yardsticks that might be used, verifiable, meaningful and sustainable outcomes are clearly the best indicator of effectiveness, while fiscal health and accountability can help to inform investors of the capacity, sustainability, and ethics of these organizations.

Q: Do individual donors understand the value of outcomes? If not, what’s the best way to educate them to their value?

A: Intrinsically, of course they do. Donors give to charities because they believe in the work they’re doing, and in the impact they (may) create. But that often rests on intuitive assessments of a charity’s vision, the severity of the need it’s addressing, and a sense of the competence of the charity’s leadership. What we don’t see that often is donors looking rigorously to measure potential impact before making giving decisions.

Why is that? Well, those donors that do want to look under the hood of a charity and examine its outcomes face further challenges, because the right information generally just isn’t available. So donors tend to end up making decisions based on much less useful (and sometimes harmful) information instead. Like administrative cost ratios, for example. We believe donors ask about admin costs because they care about as much as possible of their donation going to the beneficiary (i.e. creating impact). But telling them about admin costs reinforces the problem. Far better to explain to the donor what that admin cost achieves, in other words to lead donors to thinking about outcomes, not inputs.

In order to educate donors, we need some real coordination across the field. Charity fundraisers need to start trying to answer difficult questions about outcomes. Chief executives need to start agreeing among themselves how best to report their outcomes so that charities can be compared. Foundations need to invest in charities’ capacity to measure outcomes, and start acting on the information these efforts produce. Analysts need to agree not to publish admin cost ratios any more, and to publish more useful and comparable outcome measures instead.

KB & RP: Tris makes several excellent points, not the least of which is that an unvarnished reliance upon things like a charity’s administrative costs can lead to the wrong decisions. As we have noted elsewhere, measures of financial health are one of three dimensions that must be considered by a wise social investor. Furthermore, the most critical dimension to be addressed is the outcome of the organization’s work. It is important, however, to remember for a moment why proxies such as admin costs and similar measures were examined in the first place. The historical record clearly shows that for as far back as anyone might care to look, charities, whether philanthropically or governmentally funded, did a terrible job of measuring, assessing or otherwise reporting on their performance. Sadly, for their part many funders were more interested in head counts and compliance than they were in measures of real effectiveness.

But Tris suggests another point that is worth exploring. We initially asked if individual donors understand the value of outcomes. Tris believes that "intrinsically, of course they do." We are not so sure….

While institutional donors have their own frequently byzantine rationales for giving, many individual donors, some well off and many not of any particular wealth, often make their decisions to give to a nonprofit based upon one or more of the following six reasons:

1. A personal connection to a specific nonprofit
2. A personal connection to a specific cause or issue
3. A personal connection to the person doing the asking
4. A resonance of personal beliefs or values with an issue or the field in which a certain nonprofit may be working
5. A sense, impression, or knowledge of a great need to be addressed
6. A "brand loyalty" to or generalized confidence in a given well known nonprofit

Unfortunately, not one of these reasons either inquires of, nor addresses the effectiveness of the nonprofits to which one might be donating. In these cases, the concept of outcomes is immaterial: no matter their innate importance or value, they are being trumped by these other, often emotional considerations. It is our hope that, as public awareness develops regarding the importance of meaningful outcomes, this sorry state of affairs will change for the better and more money will end up in the hands of higher performing nonprofits.

Q: Why are so few nonprofits actually using outcome measurement?

A: My moderate answer to this question is that adopting and implementing an outcome measurement approach is hard, and takes significant time and money to pull off. But given the fact that I believe charities both should, and must, measure outcomes, I don’t think this answer is enough. My more cynical answer is that nonprofits are organisations made up of individuals, who respond to incentives. The incentives simply aren’t there yet for outcomes measurement to really gain momentum. The moral incentives (being a better nonprofit; helping more people by doing better) may exist, but next to financial incentives they can often be too weak or fragmented to drive behaviour. Financial incentives, on the other hand, are clear and strong. If nonprofits can access the funding streams they need to develop and grow without using outcome measurement, they will. If funders use their collective power to ensure that nonprofits need to report their outcomes in order to secure funding, the world will change, and outcome measurement will become ubiquitous.

KB & RP: As we have stated previously in this space, there are numerous reasons why more nonprofits are not using outcome measurement in any meaningful way. Yes, it is harder than simply doing nothing. A great part of the problem, however, is that the use of outcomes requires resources to understand and implement. Sadly, as times get tight, these are exactly the types of expenditures that nonprofits believe they cannot afford. As the vice-president of one very large nonprofit recently and incongruously told us, "With things as tight as they are, it will be a long time before we’ll be spending anything on quality assurance or performance improvement." Now think about that for a moment. What this woman was saying was that at the very time when she probably has to make the best, most compelling, fact-based case to her individual and institutional donors, she is planning instead to fall back on need, passion, and probably a few head counts; that, amazingly, with funding extremely tight and uncertain, this is exactly the time to not focus on quality or performance. On one level, her statement is laughable; on another, however, it is sad because it points to the stark fact that because donors usually do not make the resources available for assuring quality or enhancing performance, practitioners believe that they must make a budgetary choice between service and effectiveness. Many donors, unfortunately, seem to think that merely asking for, or even demanding high performance is enough. How they think such performance is going to occur, however, is anyone’s guess.

Q: Are funders doing enough to enable nonprofits to fully implement outcome measurement? What are investor/funder organizations doing, beyond those actually asking for outcomes, to truly foster the movement and its spread throughout the sector?

A: No. One could argue that charities on their own should be strong enough to implement outcome measurement, but we need funders to provide the financial incentives. Funders are not doing enough to help individual organisations on at least three fronts: 1. funding charities’ efforts to improve their own measurement, 2. acting on the findings of charities’ evaluations, 3. holding their own organisations up to the yardstick of outcomes measurement. And beyond that, funders are failing to help develop the marketplace as a whole. Without funders that are prepared to invest in infrastructure, building the marketplace, sharing experiences, and developing standards where appropriate, a lot of the effort that’s going on at an organisational level can’t flourish and be replicated.

There’s a real danger in the current climate that funding retrenches towards core services, and away from any infrastructural or developmental work. We need funders to become more committed to outcomes measurement, not less!

KB & RP: We agree wholeheartedly with Tris with one exception. As with any other skill or knowledge base, implementing outcome measurement requires a certain amount of learning. What to measure, how to measure, and how to make sense of those measurements, are among the skills any nonprofit needs to master to fully benefit from the use of outcome measures and management. The overwhelming failure of donors to make this sort of investment in the market and in their own investment partners is illogical, sad, and dispiriting. We somehow expect the nonprofits we have tasked with addressing some of society’s greatest challenges, to attain - perhaps by osmosis - the knowledge and skills that they need to perform to current and growing expectations. We have armed them with (at best!) the tools of the 20th Century, but are asking them to succeed in the 21st.

Perhaps worse than this, however, is that at the same time that the opinion among practitioners is effectively unanimous that more needs to be done to improve nonprofits’ effectiveness, from the institutional donors comes a resounding and ponderous silence in reply. What is the sound of one hand clapping? The same as the sound of the nonprofit world trying to have a dialogue with donors about the need to invest in nonprofit capacity, specifically in the capacity to understand, manage and measure outcomes. Unfortunately, until this sad soliloquy becomes a determined dialogue, not much is likely to change.

Friday, September 11, 2009

Ken's Podcast Interview

During his recent conversation with The Chronicle of Philanthropy reporter, Peter Panepento, Ken discusses our plans to expand the methodology we use to rate charities. Listen now:



Thursday, September 10, 2009

Tactical Philanthropy Advisors

Sean Stannard-Stockton is someone who is playing an important role in educating and advocating for wiser social investing in nonprofits. For a number of years he has hosted a highly informative blog site called Tactical Philanthropy. He has been a strong supporter of our efforts to modify our rating system in the ways described on this blog (for example click here). He has also volunteered to be a member of our Advisory Panel as we continue our efforts to develop a three dimensional rating system.

Sean has just announced the formation of a new organization called Tactical Philanthropy Advisors. This organization is a full service advisory firm for clients with $1 million to $50 million in philanthropic assets. They also will provide services to wealth managers, estate planners, CPA’s and family offices to help them better serve their clients. In Sean’s press release announcing the new company I stated, “Sean Stannard-Stockton has emerged as a leader in helping people what makes for good philanthropy. He is one of the most passionate, motivational and strategic thinkers in the field. By working with Tactical Philanthropy Advisors, I think most donors can become good social investors by improving the way they approach giving.”

Sean has provided me with wise counsel through a number of challenges that Charity Navigator has faced. He has also introduced us to a number of people (including Dr. Robert Penna) who have also become great supporters and advisors. So for those of you who read this blog who fit the profile of Tactical Philanthropy Advisors client base, I urge you to give him a call or email. While you are at it, give me a call too!

Wednesday, September 9, 2009

Philanthropy Camp

The Grab The Torch’s Philanthropy Camp is a 5-day overnight camp experience for campers that range in age from freshman in high school to freshman in college. The camp provides an in-depth educational experience into the business and commitment of the non-profit, foundation, cause related marketing and global greater good professional. This year's featured speakers included representatives from more than two dozen nonprofits, including Charity Navigator's own Ken Berger. Watch the video located here (scroll to the bottom of the page) to hear the participants, including Ken, describe their experience at the camp.