Good Generation

Reference:

“Nonprofit Watchdogs: Do They Serve the Average Donor?” (Ram A. Cnaan and Kathleen Jones, Allison Dickin, and Michele Salomon) - published in Nonprofit Management & Leadership #21, 2011, summarized in Stanford Social Innovation Review Volume 10, Number 1, Winter 2012

Key Ideas:

• So-called nonprofit “watchdog” organizations like GuideStar, Network for Good, Charity Navigator, the Better Business Bureau and the American Institute of Philanthropy exist essentially to provide objective evaluations of nonprofit organizations so donors can make better informed giving decisions. They attempt to create more transparency and attention paid to actual performance and hope that donors will use their ratings of nonprofits to give to the “most deserving”, thus creating a more efficient philanthropic market

• Alas, it does not seem the market for philanthropy wants to be more efficient because only 1 in 5 donors actually uses a watchdog organization. In fact, not only did most people never hear of such services, but even if they are rich, computer savvy, highly educated and engaged in volunteering, it does not seem to make them more likely to be more demanding of their nonprofits

• Apparently most people (1) implicitly trust nonprofit organizations, (2) mostly give out of personal relations and emotional connections with a cause at an available organization without deep research and (3) do not want to go through the perceived hassle given that each watchdog employs different metrics. Donors who seem to use watchdogs are mainly activists and donors with big ticket amounts at stake

• Cnaan defends watchdogs in the end stating that their existence is justified because donors need to know that they have an option of where to give, and that they need to be educated on using third party information to become “better donors”

My view:

• This article was interesting to me because I still remember my time as regular volunteer and how frustrated I was with the inefficient operation of certain nonprofits. In fact, that frustration was one reason why I decided to go to business school as I support the overall notion that we do need better accountability that NGOs run more efficient, more effective and that those funding them should hold them accountable to “harder” criteria.

• What has always particularly troubled me in a way was how people who are hard-nosed investors on weekdays, scrutinizing 10-K reports and watching live tickers for news and developments with their stocks, could on the weekends become literal philanthropic “lambs” and not care about anything but seeing the actual sick children, feeding those homeless, and planting those trees – at the expense of not caring much how the organizations behind these activities were actually on track with their missions.

• I think with this train of thought we are on to an important characteristic about the “world of doing good” represented by NGOs that is not productive in the long run. Namely, we intend to utilize the area of philanthropy as a hobby, a break from “real” work, we hang our hats and allow ourselves to wallow in warm feelings of our kindness and its effects on the less privileged. This explains why the average – in fact most – donors simply do not care about reading about objective, rational criteria and giving their money to the “best of breed” NGOs. Could we call it philanthropic laziness?

• I have seen this “laziness” in anything from college students to veteran CEOs of reputable firms and have to wonder sometimes how much closer we may be in doing good by directing our funds to the best equipped, best led organizations instead of dispersing money across millions of NGOs, many with overlapping objectives.

• This brought me to think about “impact investing.” Despite its claim to be the next big thing, the whole concept of “impact investing” today has not yet taken off in a more dramatic way because it literally has one leg in the warm, fuzzy waters also occupied by philanthropy. In other words, although social venture investors try to sell themselves as providing both “financial and social return”, it has been difficult to explain to the mainstream of would-be investors the concept of “investing in social causes” vs. “donating to social causes”. If we are talking the former, we have to put on the hard hat, start asking for reports, transparency, evaluation metrics and the works. If we are talking the latter, we may end up just wanting to see shiny brochures or photos of the poor smiling, perhaps a visit to a village even for big donors.

• The bottom line is that we have to think hard about what is required (if it is even possible) to take the laziness out of funding social good and make people demand more accountability, with the intended outcome that good money will find only good organizations. Impact investing hopes to foster and nurture such a mentality by appealing to people’s rational side as investors with all accompanying positive habits. If they succeed, we are in for a more efficient market of doing good. If they don’t and it simply takes a lot longer than expected, we may have to be more patient and allow people their self-indulgent “brain-off, open-heart, open-wallet” weekends and meanwhile sell them the beauty (yawn?) and virtue of reading and analyzing annual reports for do-good organizations.