The Principled Agent

Thoughts on development economics and impact measurement

Catalyzing transparency in nonprofit sector

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Like many, I believe that public transparency is critical to a well-functioning development system. What do I mean by public transparency? To me, public transparency is making sufficient objective information available in a comprehensible format about the operations of our organization (program, financial, etc.) so that outsiders can understand an organization’s work and verify their assertions about effectiveness and efficiency for themselves. It represents cooperating fully with the highest integrity to allow outsiders to draw their own conclusions. While public transparency won’t solve every problem, it will help nonprofits improve their performance and it will help higher-performing nonprofits to grow. Given this potential, why is it so difficult for Givewell to find nonprofits that meet even basic standards of public transparency?

I’d argue that there are significant number of organizations that would be better served by greater public transparency, but that are inhibited by a significant status quo bias. More transparency sounds a lot like “more resources dedicated to non-program work” and greater risk.
So how can we create a new normal? Most advocacy at this point aims to change minds, with the assumption that this will lead to a change in behavior. But what if we modified the behavior first? Transparency initiatives that change the grantee public disclosure requirements of institutions like USAID certainly help. Yet an enterprising foundation or major donor could also play a significant role for small and medium nonprofits.
Money gets you a seat at the table. I don’t know if the right amount is $20 K or $50 K (depends on the nonprofit!), but grants can push through the status quo (for better and for worse.) This would require that a sophisticated donor goes against standard good practice in their giving. Sophisticated donors know that unrestricted gifts respect the capability and the wisdom of the nonprofit to put the funds to their highest and best use. In most cases, it’s highly unlikely that the donor outsider knows better than the high-performance nonprofit how to turn dollars into impact. Unrestricted gifts make sense for the same reason that many prefer unconditional to conditional cash transfers to people living in poverty.
But if our goal is to catalyze a whole sector to behave differently, we want to push nonprofits that may be doing some of the right things to all the right things.  If you think public transparency represents something like a public good, it’s worth paying for. When donors and nonprofits visit the website of highly-regarded nonprofits, we want them to see a high quality of transparency. We want to raise expectations, and help create a new status quo.
To this end, with a million dollars, a sophisticated donor could catalyze 20-40 nonprofits to adopt and maintain transparency practices for 2-3 years through a conditional grant of $20-50 K each. If the donor targets the nonprofits well — and if our theory about the value of transparency is correct — this change would be sustainable, and these organizations would help set a new standard for donors and nonprofits.
Disclaimer: I work for a nonprofit. This post represents my views and not necessarily those of my employer, Trickle Up.

Written by Chris Prottas

February 11, 2015 at 2:19 am

Posted in Uncategorized

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