Tuesday, February 1, 2011

Fighting for Transparency in Canada

On December 6, 2010, I was asked to present remarks before the Canadian House of Commons, Finance Committee. This followed the blog exchange Dr. Penna and I had with Dan Pallotta (here and here). An array of nonprofits gave their rationales for why CEO and other executive compensation of nonprofit leaders should not be required to be disclosed. Below are my brief remarks on why they should be!

Mr. Ken Berger (President and Chief Executive Officer, Charity Navigator):

My name is Ken Berger. I'm the president and CEO of Charity Navigator, and I make $140,000 a year.

Our organization's mission is to be a guide to intelligent giving. So we're here for the donors.

I have to tell you—on behalf of donors in the United States, at least—that the question of the compensation of the leadership of charities is one of the most critical pieces of information donors want to know. We have over three million people who use our website. We get five million hits a year. It's estimated that we impact between $5 billion and $10 billion of charitable giving each year. The most frequent comment we get from our users is regarding CEO compensation. Every year we do a CEO compensation study, and it's because of the public disclosure of that information that we're able to do this. We provide it freely; you can download it from our website. It is without a doubt the most popular thing we do.

I just want to say that from the scandals that have occurred in the United States among well-known charities, from the Red Cross to the United Way to the Smithsonian, and others, there's been the firm belief that transparency in every area, including salaries, is one of the ways to shine a light on the scoundrels and to avoid scandals in the future.

In the United States, the IRS gathers this information. For the first time in over 30 years, they have modified their reporting form to obtain even more information, far more information and more detail on the salaries, because it has been so relevant. While the auditing of charities is a function of theirs, the fact is their ability to do this is very limited. Their staffing is limited. So we think that public disclosure, that shining of the light, is a restraint on some of the extreme outliers and abuses that are out there. It affords an opportunity for a groups like ours, and the media and others, to do investigations of those outliers and problems.

I read with some amazement an argument that's been made by some here that in the United States, because of the transparency and the fact that we now know the salaries, the salaries have skyrocketed. Well, did you know there's been an increase in the number of buffalo and a skyrocketing in text messaging in the United States?

Some hon. members: Oh, oh!

Mr. Ken Berger: The correlation between transparency and this notion of salaries.... In fact, the reason that salaries have increased is in part that in the United States there's been a dramatic increase in the amount of government contracting for charities to do the kinds of work that government has done before; and as the economy has done well—at least up until 2008—and the percentage of money that people give has grown, so have the size and complexity of these organizations. That is the way salaries get determined. According to all of the experts we speak to, the salaries are based on size, complexity, and cause. Those are the reasons that salaries go up, not because of transparency. My God, it's the opposite! Transparency helps as a brake against abuses.

So, other than that, I would argue, in conclusion, that if a charity is truly mission-driven, then when the dust settles and this information is disclosed, it will become more trusted. The most precious commodity a charity has is the trust of the public, and the public wants to know this information. Those charities that are open in this way and disclose information will garner more trust, and it will lead to a more efficient sector. The information will help all of us in making more rational decisions related to determining CEO compensation in this sector.

In conclusion, I hope we can have more disclosure in areas like this, so that the mission can be better fulfilled, rather than seeing the abuses where people's pockets get lined, rather than the world being made a better place.

Thank you.

No comments: