Monday, September 27, 2010

Transparency and Fundraising: Is There a Connection?

This article was originally published on the NTEN blog.
By Ken Berger and Robert M. Penna, Ph.D.

As calls increase for charities to be more open and accountable in their management and reporting, it is natural for many of them to ask, considering the extra work involved, "What’s in it for us?. Is there a connection between more transparency and more successful fundraising?"
The answer to that question today is:
  1. There probably isn’t an overwhelming connection at the moment; but...
  2. There should be; and eventually...
  3. There will be.
To appreciate the change we anticipate will come in the next few years, it is important to recognize how things are changing regarding how charities justify themselves and their appeals for support.

Traditionally (which is to say for the last 60+ years or so), charities focused on the magnitude of the problems they were addressing and the efforts they were making to help. For donors, they would point to the number assisted as undeniable evidence that support for their work was warranted. For government, they offered reams of paper showing that they were following the letter of the law in the use of their grants. Unfortunately, these accents on counting activities and maintaining regulatory compliance left unanswered the basic question of effectiveness: Were the efforts of these charities bringing about any meaningful, sustainable, or measurable positive change to those they existed to serve?

The problem was that no one knew for sure, not even the charities themselves. Much of this had to do with the tradition(s) charities inherited from both government and from their own forbearers. From these sources the charities of the latter third of the 20th Century were bequeathed a belief that the simple act of making services available was virtually the same as solving a problem, a concept that worked to the particular benefit of state and federal legislators anxious to show their constituents that, via the appropriations they approved, they were doing something about various social problems. Little effort was traditionally expended, however, to ascertain whether, in fact, those services (and the resources expended) had made any appreciable difference whatsoever upon the underlying issues whose symptoms they were meant to address.1

The outcomes movement emerged in the sector starting in the late ‘80s and presented new tools to help nonprofits set, work towards, and verify meaningful and sustainable results. In addition, more and more charities began to feel pressure from individual and institutional donors alike to be open and honest about the results they are (or are not) achieving.2 As a result, a paradigm shift began.

At the same time, the scandals that resulted in the passage of Sarbanes-Oxley (including more than a few within the ranks of nonprofits) had a ripple effect on the sector. Organizations of all kinds came under new scrutiny regarding their management, spending decisions, and ethical behavior. A new push for transparency, pulling back the time worn veil of secrecy behind which so many of these organizations were run, began to make itself felt in the charitable sector. From the press and watchdog organizations, to whistle blowers and state attorneys general, it seemed that everyone was beginning to peek under the sheets to see what was really going on in these charities. This was especially true for those that accepted (or largely lived on) public dollars -- primarily those that provide human services, international relief, health care or educational services.

Between these two pressures, for evidence of results and for transparency in management, it has been the dawning of a new day for the charitable sector. The degree to which nonprofits have responded has varied. Some have embraced the new standards, making honest efforts at providing donors -- governmental, institutional, and individual -- with real evidence of impact and with accurate, straightforward disclosure regarding their management, decision making and internal policies. Others have attempted to pass off old wine in new bottles and comply in form rather than in true substance.
Charities owe it to those they serve to be effective.3

Similarly, they owe it to their social investors -- those institutions and individuals (taxpayers foremost among them) who provide the resources upon which charities exist. They should be producing a return on the social investment that is made in them demonstrated via proof of effectiveness and the creation of social value. Moreover, just as the collapse of Enron and several Wall Street giants pushed for-profit corporations further in the direction of providing the public and their shareholders with greater transparency regarding what they are doing and how they are spending their investors’ money, so too do charities owe their stakeholders the same. There is simply too much work to be done by the nonprofit sector to have scarce and precious resources squandered on “charities” that are ineffective, inefficient -- or downright fraudulent.4

Social investors and taxpayers are owed nothing less than a full accounting of organizations’ effectiveness, management and expenditure decisions. More to the point, these stakeholders should demand such an accounting. We believe that they have begun to do so, and will more and more base their giving decisions upon such information.

Since its inception, Charity Navigator has striven to provide social investors with unbiased, reliable, and accurate information regarding charities’ finances. In recognition of the emerging tools and the tremendous need for information regarding transparency and effectiveness, we have recently undertaken efforts to include these measures in our rating system. In July of 2010, we added a new dimension to our rating system which considers the accountability and transparency of charities as reflected in certain information on their web site, as well as new information required in their annual IRS 990 filing.5

Furthermore, provided our fundraising efforts are successful (!), within a year social investors will be able to use our website to not only ascertain whether a certain charity is a fiscally sound and meets basic standards of transparency and accountability, but also we will evaluate the organizations effectiveness and results.
We firmly believe that this is no longer the wave of the future, but is the tide of the present. Charities that do not get on board, those which continue to obfuscate and/or try to rely as the justification for their fund-raising efforts upon descriptions of problems, stories of their assistance to a few individuals without robust data to back it up, or data that is nothing more than accounts of activity, will begin to suffer losses in revenue.

We are beginning to see evidence that grants, particularly those from government and institutions, are increasingly going to those organizations that can prove effectiveness. We believe that individual donations will increasingly go to those organizations that are open and accountable about how they are spending the money they get, the associations they maintain, and the decisions they make.

As evidence of this belief, we present the following: prior to launching the transparency and accountability dimension of our rating tool this year, we polled our donors to ascertain their level of interest and support for such information. Ninety eight percent indicated a strong or very strong level of interest in it. The demand exists; and we are going to do all in our power to meet it. And so, our answer to the question of whether there is a connection between more transparency and more successful fundraising is yes, and more and more so by the day. It is unmistakable and undeniable. And you can take that to the bank.

Ken Berger is President and CEO of Charity Navigator, the nation’s leading charity rating service. Dr. Penna is an independent outcomes consultant, an advisor to Charity Navigator, and the author of The Nonprofit Outcomes Toolbox, to be published by Wiley & Sons this winter.

[1] For a more in depth treatment of this subject, see Berger and Penna, “Billy Beane and Outcomes: What Can Baseball Tell the Nonprofit World About Measures and Measurement?” Philadelphia Social Innovations Journal. August 2010
[2] Ibid.
[3] Hunter, David. “The End of Charity.” Philadelphia Social Innovation Journal. October 2009
[4] Vincent, Isabel and Klein, Melissa. “Fraud charges loom for Pedro.” New York Post. July 4, 2010; and Golding, Bruce. “BRONX POL 'FE$$ES UP.” New York Post. May 9. 2009.
[5] The details of this change can be found on our web site ( here:

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