(Sean Stannard-Stockton is on vacation. This is a guest post from Jacob
Harold, a program officer at the William and Flora Hewlett Foundation.)

This week I’ve been discussing the nonprofit marketplace. I’ve argued that this marketplace would benefit from better information about nonprofit performance. One post discussed the supply of information and another the demand for that information.

But markets require more than just buyers and sellers. There needs to be a place for exchange—either a real place (a local farmers’ market) or a virtual place (NASDAQ). More broadly, markets need institutions to help them run smoothly. In the private capital markets, there are entire armies of investment bankers, law firms, ratings agencies, accountants, and media outlets. These institutions help develop platforms, standards, and principles to ensure a fair, open, and (relatively) inexpensive system. Enron and the current credit crisis have proven that these systems can fail. But without them, the market would not work at all.

The nonprofit sector is, of course, different from the private capital markets: It’s often harder to describe nonprofit impact—it rarely can be measured in dollars (or yuan or pesos or shekels). Donors rightly have an emotional relationship with their philanthropy. It’s essentially impossible to compare across issue areas. There are no exchange rates across issue areas. (How many species saved from extinction does it take to equal 1000 brilliant operas?)

So the market institutions need to be different for philanthropy (flexible, patient, compassionate). The nonprofit sector already has several platforms that aggregate information and facilitate transactions: Guidestar, Foundation Center, IssueLab, Network for Good, JustGive and many others. These are all adding tremendous value; they could also benefit from more programmatic information and closer integration with private sector platforms like online banking. To facilitate interoperability across these different platforms it would be helpful to have a basic standard format to “tag” data about nonprofits. This standard could take many forms, but would need to allow for anyone to publish nonprofit information in a way that could be reorganized and remixed by others, perhaps using simple formats in XML such as RSS. (Here is a cautionary note on this.)

Finally, there are a set of behaviors or principles that would facilitate the growth of this information-rich marketplace. First, we all need to be willing to let go of our information. As institutions in the nonprofit sector, we have a general (though not absolute) responsibility to share what we know for the good of all. In the long run, I’d argue this means a shift from an “opt-in” to an “opt-out” mindset for nonprofit transparency. That is, if you don’t want to make something available, that’s fine—but the default is transparency. Second, we need to stay focused on social impact. It’s difficult to make forthright judgments about how well an individual organization is creating impact. But we have to try. Honest conversation helps us learn, raises expectations, and—let’s hope—facilitates good choices.

(Sean Stannard-Stockton is on vacation. This is a guest post from Jacob Harold, a program officer at the William and Flora Hewlett Foundation.)

It’s easier to figure out which inkjet printer to buy than how to write a smart check to fight homelessness. In an information age, philanthropy is caught in a strange kind of information vacuum.

To return to the toolbox metaphor in the previous post, where can we find a flashlight? Where do we get some useful information that could help donors make some better decisions? (In a future post I’ll talk about how we might make sure the information actually gets used by donors.)

One source is obvious: we should get information about nonprofits from nonprofits. In a sense, we already do: we can get financial data from the nonprofits via the IRS and Guidestar. And we can get marketing materials from the nonprofit itself—usually some generalities and a few anecdotes. But what about the substance of the work—the day-to-day struggles best summarized in an articulated strategy and whatever quantitative and qualitative measures of progress the nonprofit uses?

It is a great irony that the nonprofit sector, which has done so much to bring openness and transparency to the world, has so struggled to “open its programmatic books.” The nonprofit community (including foundations) has a ways to go, but new tools have emerged and are helping nonprofits capture and share their programmatic data.

Constituents offer a promising source of information about nonprofits. Volunteers, experts, peers, and (God forbid!), the final beneficiaries of a nonprofit’s work all offer unique and potentially meaningful insights into an organization’s effectiveness. Tapping these new sources of information will be no easy task, but in the end they may prove to provide more light than we could ever need.