Category Archives: Transparency

Efficient Markets in Philanthropy

January 24, 2008 – 9:25 am

In response to my post yesterday in which I discussed the value of information to philanthropy and why donors should desire efficient philanthropic markets, Phil Cubeta writes:

The logic here can become relentless and destructive. What this tends towards a lists, like league tables in a sport, with the best at the top. It leads then to managing a nonprofit by the numbers, to get the rating, and it leads to shutting down those that don’t rank high. We then have the tyranny of the metrics, however much arbitrariness is built into them…

The world you want - are you sitting in corner office reading a spreadsheet?

So are the philanthropic capital markets I envision boring and lifeless with endless spreadsheets and numbers to crunch? Not in the least.

Economics is often called the “dismal science”. I know that many people think that finance is boring. But the vision of financial markets as nothing but numbers and spreadsheets does not capture the reality. Do investors buy stock in Apple because they spent hours and hours processing spreadsheet calculations? No. While at the end of the day, buyers of Apple stock believe that the return on capital being generated by the company will make for a profitable investment, the information they use to determine that are not just numbers. The way in which Apple has captured the imagination of the consumer, (an intangible piece of data that cannot be added to a spreadsheet) is by far the most valuable asset that Apple has and it is a major reason why investors have flocked to the stock.

Have you ever watched CNBC, the news channel of the financial markets? It is far from some kind of spreadsheet crunching lecture. Every day, investors or all types come on the show and make passionate arguments for why certain companies are good investments. While numbers and calculations underlie much of their thinking, it is the story, the human story of the companies they discuss that take center stage.

Warren Buffet is widely considered the best for-profit investor of his generation. Does he sit in a corner office reading a spreadsheet the way that Phil suggests? The quote below is from noted investor Whitney Tilson (Tilson is a huge fan of Buffet and a fellow columnist of mine at the Financial Times):

If the future were predictable with any degree of precision, then valuation would be easy. But the future is inherently unpredictable, so valuation is hard — and it’s ambiguous. Good thinking about valuation is less about plugging numbers into a spreadsheet than weighing many competing factors and determining probabilities. It’s neither art nor science — it’s roughly equal amounts of both.

The lack of precision around valuation makes a lot of people uncomfortable. To deal with this discomfort, some people wrap themselves in the security blanket of complex discounted cash flow analyses. My view of these things is best summarized by this brief exchange at the 1996 Berkshire Hathaway annual meeting:

Charlie Munger (Berkshire Hathaway’s vice chairman) said, “Warren talks about these discounted cash flows. I’ve never seen him do one.”

“It’s true,” replied Buffett. “If (the value of a company) doesn’t just scream out at you, it’s too close.”

Taking liberties with Tilson’s quote, I would argue that donors should not “wrap themselves in the security blanket of metrics” because “the lack of precision around measuring the impact that nonprofits achieve makes them uncomfortable.”

World-class investors do not sit in their office crunching spreadsheets all day. Neither should world-class donors. But the underlying logic of both should be that of achieving the highest return on investment.

Recently Phil commented to Perla Ni regarding her site Great Nonprofits (which offers reviews of nonprofits written by volunteers, donors and the people served by the nonprofit):

Thank you so much, Perla, for setting the record straight. In fact, your site is the exact opposite of a metrics driven exercise. You are bringing together the voices of those who have been touched by a nonprofit. I finally “got” what you are doing.

An efficient philanthropic capital market does not only view numbers as valuable inputs to the decision making process. Sites like Great Nonprofits offer extremely valuable information to donors. This sort of qualitative information is critical to both donors and for-profit investors. Great Nonprofits is not the opposite of a metrics driven exercise. They are both part of the same process of determining where donors and investors should direct their capital.

Disclaimer: Nothing in this blog should be construed as investment, tax or legal advice. This blog is for informational use only.

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Grantmaking, Impact Measurement, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (7)

Information Sharing in Philanthropy

January 23, 2008 – 11:45 am

I wrote a post a while ago called Paul Brest Needs a Blog (Paul is the head of the Hewlett Foundation). I’ve been an advocate for more people in philanthropy to start blogging in general. In the above mentioned post I wrote:

So why should foundations blog? It seems to me that the imperative is not for them to embrace technology so much as it is for foundations to join and begin to drive the online philanthropy conversation. [But] it is the two-way flow of information that blogs encourage that is important, not blogs themselves.

Even so I’ve noted recently that some people feel that I’ve pushed blogging rather than information sharing. As the conversation we’re all having unfolds I think it is important to take a step back and make sure we haven’t missed the forest for the trees. I wish I had expressed my thoughts with more clarity.
When Phil Cubeta recently asked why nonprofits should blog, astute reader Michele Moon asked:

I’m not entirely sure why it’s blogging, in particular, that’s the focus of discussion, especially because it’s now considered a little bit old-hat, Web 1.5. What is it about the format that makes it so essential to transparency and its tyrant? Is it actually blogging you want to see - personal, real-time updates and editorials, followed (if you’re lucky) by people who read, comment, and sometimes stick around to converse?… Why should it be blogging that we aim to do, or is that shorthand for more complicated online interactivity?

I’m guilty of using “blogging” as short hand for information sharing. I’ll stop making that mistake.

When economists speak about efficient markets they are talking about a situation where money flows to the organizations that can put it to the best use. Widely available, robust information is a critical factor for a functioning efficient market. Recently, in a conversation with Phil Buchanan and other readers on this issue I wrote the following (you can find the full thread here. The Chronicle of Philanthropy recently highlighted the conversation):

In an efficient market, investing is a zero sum game. Maximum returns are generated globally so the only question is matching an investor’s risk/return preferences. In inefficient markets, higher returns accrue to more “effective/smarter” investors. In a public benefit market, since all returns accrue to everyone, investors should desire an efficient market within which they could align their social investments with their personal values/goals.

The philanthropic capital markets are highly inefficient. Far more inefficient than any for-profit marketplace.

Therefore, it seems to me that making the philanthropic capital markets more efficient should be the number one priority of large funders who desire to be effective…

I’m not arguing that the public will make better decisions than the “experts”. I’m saying that efficient markets will produce better outcomes than inefficient markets. In the for-profit world, inefficient markets are great for “expert” investors because they can exploit superior information to generate outperformance of investment returns. But these inefficient markets reduce the total returns in the market by preventing capital from flowing to the best performing investments.

What I’m saying is that unlike in the for-profit market, “expert” philanthropist enjoy no advantage from superior information. The returns they generate accrue to the public, and so no “outperformance” is possible. Instead, they should be interested in the total market functioning at a higher level, since that is the only way to increase the social return on investment that accrues to everyone.

This is the challenge we face as a field. How can we ensure that the $300 billion that is given to charity each year is flowing to the organizations that can put the money to its best use? The key will be our ability to supply market participants with widely available, robust information. Blogs are one tool in this work. There are many others.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Foundations, Giving Blogs, Grantmaking, Impact Measurement, New Philanthropy, Open Source Philanthropy, Philanthropic Capital Markets, Philanthropic Technology, Philanthropy | Comments (18)

Should Foundations Fund Philanthropic Information?

January 16, 2008 – 1:49 pm

An interesting conversation is beginning to unfold in the comments to Phil Buchanan’s podcast. The point I’m making is not that foundations have some sort of obligation to fund nonprofit information for public use, but that doing so is in their best interest. This conversation ties in directly to the conversation we’ve been having about Google Finance and Google.org.

If a foundation can give $1 that creates $2 of social benefit, or give $1 that spurs the public to give $10, which creates $20 of social benefit, which one should they choose? This ability to give $1 and get $10 of social benefit instead of $2 is the “leverage” that so many philanthropist and foundations say they want to employ.

Here’s the big leverage opportunity of this decade: Provide the individual donors (who every year give seven times more than all the foundations in the country combined) the information they need to make better donation decisions.

Join the conversation with Phil Buchanan and let’s work this problem out!

PS: As background it might be useful for readers to note the essay by Paul Brest, the president of the Hewlett Foundation, in which he discusses “the advantages of good information” in philanthropy. In the essay he mentions Great Nonprofits, whose founder Perla Ni is participating in the conversation with Phil Buchanan. Hewlett is, to my knowledge, the most forward thinking foundation on these issues. Hewlett is also considering funding GiveWell.

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Foundations, Grantmaking, Impact Measurement, New Philanthropy, Philanthropic Capital Markets, Philanthropic Technology, Philanthropy, nptech | Comments (0)

United Way on Google Finance

January 10, 2008 – 9:57 am

After reading a United Way blogger’s reaction to my prediction that UW would develop an industry standard, narrative outcome measurement form and my discussion of Google Finance, I’ve started a discussion thread on the Google Finance page for United Way.

The United Way’s focus on Outcome Measurement is wonderful. I wish  there were more resources like the ones you list at http://www.unitedway.org/Outcomes/  elsewhere on the web. I was wondering if someone at United Way could  explain to me a little bit about how your organization thinks about  qualitative vs. quantitative evaluation of nonprofits. It seems to me  that quantitative metrics are probably easier to measure, but less  valuable than more difficult to measure qualitative outcomes.

Any help you can provide in thinking through this issue would be  wonderful. Thanks!

FYI: While the Red Cross has stopped posting to the thread I started on their page, I understand from sources that they are taking the questions about their effectiveness quite seriously.

I wonder how the United Way will respond?

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Impact Measurement, Philanthropic Technology, Philanthropy, nptech | Comments (3)

Holden Karnofsky & GiveWell

January 8, 2008 – 3:46 pm

If you are not already aware of the GiveWell “astroturfing” and “sock puppet” scandal, you can read the official statement from the board here, Holden Karnofsky’s explanation here, and the New York Times coverage here. You can also read the extensive comments on the GiveWell posts.

Holden Karnofsky screwed up. He promoted GiveWell in a way that was dishonest and he deserves to have lost his job as executive director of GiveWell.

People who care about a new and better philanthropy have just suffered a major setback. Holden had brought mainstream media attention to concepts like transparency, nonprofit effectiveness and the idea that foundations can and should make their grantee evaluations public.

Holden’s dishonesty was contained to the way he promoted GiveWell online. There is nothing about the core concept of GiveWell that is dishonest.

Boy, what a disaster. Holden Karnofsky and GiveWell go from media darling (with coverage in the NY Times, Wall Street Journal, CNBC, NPR, Chronicle of Philanthropy and Chicago Tribune) to the dumpster in the span of 10 days. Holden’s actions deserve the condemnation they ignited from the users at MetaFilter, but it is important we recognize two distinct things are going on here: Dishonest marketing practices and an honest attempt to produce much needed, publicly available, nonprofit impact evaluation. It is important to note that none of the mainstream media attention came about from Holden’s astroturfing. The stories were not about an online groundswell around GiveWell, they were about the innovation of publicly available charity evaluation on par with stock market research. You’ll see that none of these media outlets will correct their stories because Holden’s missteps were in the marketing of his product, not in the product itself. The mainstream media stories were about GiveWell’s product, not their marketing expertise. In the New York Times story about the scandal, Stephanie Strom (who wrote the profile of GiveWell 10 days earlier) never suggests that anything about the GiveWell product was a scam.

Holden started GiveWell when he realized that there were no decent resources for donors who want to identify which charities are doing the best job in a certain area. He became so passionate about this problem that he quit his job and started GiveWell to fill the void. The void he wanted to fill is real and critically in need of filling. Like any small startup, GiveWell was successful in some ways, less so in others. Holden is an incredible focused, brash individual and his style of communicating made him many friends and enemies. I would suggest that without his brash style, GiveWell would have gotten very limited attention. But his brashness created problems. I called on him to change his style over the course of the last year. Once he got mainstream attention, I told him that since he was now the poster child for transparency, he needed to understand that he was representing a concept and that all of his actions would be viewed by others as part of what “transparency” means.

Then Holden was exposed for a breach of ethics in online behavior. Most people have never considered the ethical implications of “astroturfing”. Essentially, Holden used the fact that the “persona” that you are online can be manipulated so that you appear to me more than one person. Many people use multiple identities online, but Holden did so in order to make it appear as if multiple people were talking about GiveWell while in fact (in these cases) Holden was having both sides of the conversation.

But this breach of online ethics does nothing to diminish the importance of GiveWell’s work or the organization’s core concepts. If Apple hired people to go online and post message about how poorly their Windows based computer performed, this would be dishonest. But it would not suggest in any way that Apple’s product was bad. It is a case of dishonest marketing, not a dishonest product. The real shame is that the GiveWell concept is so strong that Holden did not need to use dishonest marketing to further his cause. GiveWell was getting much deserved recognition from people who never came across examples of his astroturfing.

I’m really worried.

I’m worried that as much as Holden’s hyperactive focus on transparency brought attention to the concept, his ethical missteps will allow foundations to decide that they do not need to be transparent.

As Phil Cubeta wrote on the subject:

There is absolutely no good reason that the effort should die. But, the scene got so wild on line over the Holden thing that I am concerned that conservative risk averse philanthropy people will be less likely to venture on line, lest something dreadful happen. I do not believe that they should go back into safe spaces, but I do fear that they will use this as a rationale - “Did you see what those Barbarians did to one another? Who wants to expose our dignified organization to that kind of kerfuffle? We have better things to do than mix ourselves up in that. Let’s have our event be offline, invitation only, and no bloggers.

The message of Holden’s ethical issues and the resulting fallout is NOT that transparency, evaluation or “open source philanthropy” is dangerous in any way. The message is that no matter what your mission is, the ethics of online behavior are still evolving and you should be guided by the idea that you should not do anything online that you would not do offline. The GiveWell scandal is a story about online ethics, not a story about transparency in philanthropy. While it is ironic that Holden, while promoting transparency, hid his identity, his actions do not point out a fallacy in the concept of transparency but rather highlight how important it actual is.

I don’t know that GiveWell can survive without Holden as executive director (although he has been retained as a program officer). As much as I like Holden personally (we have no official connection and have never met in person, but we’ve traded many emails and blog comments), I don’t care so much about whether GiveWell survives as I care that the concepts it was promoting survives. If you’ve been following the series of posts and comments on this blog about nonprofit info inside of Google Finance, you’ll understand the big missing piece needed to allow for effective allocation of philanthropic capital to high impact nonprofits is extensive qualitative research of the kind GiveWell was trying to produce.

I think that if we had fully functioning philanthropic capital markets, what would happen right now is a large foundation would acquire GiveWell. The Hewlett Foundation or Edna McConnell Clark would swoop in and make GiveWell a small division of the foundation. They would then provide the experience and mentoring that GiveWell needs. And they would dramatically increase funding for the project.

Philanthropy needs more people like Holden Karnofsky. People who are willing to try new things, demand better from the field, and stick their neck out. The Holden Karnofsky’s of the world need the current philanthropic leaders to not run scared from change or mock their immaturity, they need the current leaders to embrace them and provide them with the experience and mentoring that they need.

Making the world a better place is hard work. We need arrogant, risk takers and we need experienced, wise people if we are ever going to make a difference.

By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropy | Comments (17)

Rebooting Nonprofit Evaluation Debate

January 7, 2008 – 9:46 am

A lively debate about nonprofit evaluation and metrics has been raging in response to my request for input on my meeting later this week with Google.org. However, the conversation has splintered into a debate over whether a systematic, “metric” driven process of scientific measurement is needed, or whether the frame of scientific measurement is “an epistemologically impoverished frame” through which to understand nonprofit evaluation.

I personally believe evaluating nonprofits is mostly about evaluating their output (the social good they produce). Since it is difficult (impossible?) to quantify this output, I think the focus on metrics as a framework for evaluation is misplaced. Metrics can be used, but they should be designed on a case-by-case basis for each situation. That being said, I think the conversation has fallen into the trap of being constrained by historical frames of reference.

I want to have a different conversation.

I’m interested in what information is available to donors who want to evaluate a nonprofit and which of this information is useful. Google.com is mostly a resource that points to information; they don’t tend to create a lot of their own content. So if we imagine a future version of the nonprofit data inside of Google Finance, I don’t imagine it will be some new metric that we design. Instead, it will point to existing information on the web. When I first wrote about nonprofit info in Google Finance, I said I hoped they would not display Charity Navigator ratings (although I would support them noting if a nonprofit had a zero or one star rating since I do believe that a Charity Navigator rating at this level is a significant red flag)

So the conversation I want to have is what information do readers think that donors should consider when evaluating a nonprofit? Then secondly, where or how can this information be captured online so that it can be displayed in Google Finance?

Open Invitation to Foundation Employees

I realize that if you work at a foundation, you may not want to jump into a conversation that involves telling another foundation what to do. However, the conversation we’re having here is really important and would not be complete without the input of the army of program officers (ie. Nonprofit evaluators) that read this blog. So please consider commenting anonymously (just let us know you’re a program officer) or comment publicly and realize that we’re having a broad conversation about nonprofit evaluation that goes beyond Google.org and Google Finance

Open Invitation to Nonprofit Employees

A conversation about nonprofit evaluation would not be complete without the input of the nonprofits being evaluated. What information do you, as nonprofits, what donors looking at when they evaluate you? It could be that someday the Google Finance website about your organization becomes the top ranked search result on google for your nonprofit. What do you want on that page?

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Grantmaking, Impact Measurement, New Philanthropy, Philanthropy, Social Media, nonprofits, nptech | Comments (70)

Philanthropy Conversation Wants You!

January 4, 2008 – 9:09 am

Rather than post today, I’m going to point you back to this post and encourage you to join the growing conversation in the comments section. I think the topic of this conversation is the most important issue facing philanthropy today. The fact that this conversation is centered around Google adds time sensitive relevance to the subject, but the subject matter at hand is far bigger than Google. The issue is how can we improve the available information about nonprofits so that the $300 billion+ donated to charity each year can flow to the best nonprofits. Improving the flow of philanthropic capital will completely transform the nonprofit sector and you won’t believe what we as a sector will be able to accomplish.

So click here and add your voice to the mix. Philanthropy needs you.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Grantmaking, Impact Measurement, New Philanthropy, Philanthropy, Social Media, nptech | Comments (2)

What to Measure and Why in Philanthropy

January 3, 2008 – 12:24 pm

I’m meeting with someone from Google.org next week to talk about what kind of information I think they should make available about nonprofits in Google Finance and other ways that Google.com’s mission statement to “organizing the world’s information” can be directed at the Third Sector.

In preparation, I’d like to spend some time speaking as a community about this issue. I encourage you to leave comments or email me your thoughts.

In response to the thread I started on the Google Finance Red Cross board about how effective they are, I got a comment from Leyla Farah of Cause + Effect public relations:

One item I’d offer: a measurement of “average cost of impact” - in other words, the organization’s total budget divided by the total number of people (or animals, or acres of land) it’s benefited within a specific time period. That metric would (1) force each organization to provide a definition of how it helps people (etc.) - and (2) force it to account for all the costs associated with providing that help.

While Phil Cubeta of Gift Hub scolded me for focusing on metrics:

Paradise Lost versus Gone with the Wind. What metrics do we use to determine which is better? Some subject matter requires judgment, taste, discernment, even wisdom. We have movie critics, book critics, educators to help us make more discriminating judgments. Before we cry ourselves hoarse over metrics, we have to ask whether philanthropy is more like art or more like business. The call for metrics can be a bullying move by the half educated to impose their MBA logic on a sector whose reason for being is that it stands in contrast to both government and business. As the old saying goes, “Do not attempt to cure what you do not understand.” Stressing metrics, Sean, is in terrible taste. You paint yourself as Barbarian.

Personally, I’d like to state that I don’t intend to stress metrics as being valuable unto themselves. However, I do think that all things in life can be judged, at least in each person’s personal view, as being bad, good, better and best (I’m sure there are some exceptions, but you get the point). I think it is critical that we find ways to judge nonprofits so that philanthropic dollars can flow to the organizations that do the most good in the world. To me, funding the best of what is available is far more important than trying to invent the next big thing. I think that information about nonprofits is what is needed and this is why I care about nonprofits being in the Google Finance portal.

As a professional investor in for-profit companies, I can tell you that there are very few (none) golden metrics that allow you to comprehensively judge one for-profit against others. Even very widely used metrics like “price to earnings ratios”, “dividend yields”, “profit margins”, and “earning growth rates”, have been show in practice to be very useful, but not in any way adequate to judging the superiority of one investment choice vs. another on their own.

In my Philanthropy Predictions for 2008 that I wrote for the Chronicle of Philanthropy, I made one reference to measurement:

A United Way-authored outcome-measurement template will be adopted by the sector as the standard format for nonprofit organizations to report on their effectiveness. The narrative-driven form will soon be available for download from the home pages of many nonprofits.

Note that I suggest a “narrative-driven form”. If you read analyst reports on for-profit investments, you’ll see a lot of numbers and metrics, but the heart of the report is a narrative about the company.

This brings me to an excellent comment from the thread mentioned above from an anonymous “young staffer”:

If I may carry the Paradise Lost vs. Gone with the Wind analogy a little further, I think it raises some interesting points.

The first is that there are plenty of potentially relevant metrics with which one could back up one’s a claim for each work’s superiority: their longevity in years, the number of universities that include them in introductory freshmen humanities courses (as a proxy measure of their centrality to our cultural canon), a RottenTomatoes.com-style survey of critics. I can even imagine poor grad students counting allusions to them in last year’s bestsellers.

Relying solely on any one of these potentially valid measures, however, would obviously leave you wide open to criticism for the flaws of your methodology and the limits of the analysis. To construct a strong argument for your preferred choice, one could use both the metrics and qualitative measures. Same goes for nonprofits - the measures are neither perfect nor complete, but that is not the same as nonexistent.

I think the other point is the difficulty of comparing apples and oranges. Let me reframe the question as “Paradise Lost” work of literature vs. “Gone with the Wind” work of film. Both are widely-considered seminal works in their mediums. It’s not hard to imagine metrics, like those above, that could easily distinguish each as a leader within its respective medium. It is much harder, however, to compare them very convincingly across mediums. An author and a film buff might reach very different conclusions about which one matters more in today’s culture. Their distinctive values and tastes will influence that decision.

The same, I think, is true for nonprofits. Too universal a measure like “average cost of impact” might not be helpful for identifying whether a great afterschool program in New York or a great community health program in Uganda is better. The costs and the measures of impact are on different scales. But metrics certainly might help you identify each within its field as the seminal nonprofit. From there, one’s values and tastes might be expected to guide your choice.

So there you have it, a good beginning to an important conversation. If there was a single webpage, like this one for the Red Cross, or this one for Cisco Systems, that contained all the information you would like to see when you wanted to examine a nonprofit for the first time and decide if you might want to support them, what information would you like there to be on the site?

Google.org owes me nothing and anything I tell them might be ignored. But on the other hand, I will deliver the message that we co-create over the next week in this discussion. Someone from one of the largest (and oldest) foundations has already asked me to pass on their offer of help to Google.org after reading my posts on the subject. I do think that any effort that you the reader put into this discussion will be heard by the powers that be at Google.org, even if they do not take action.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Grantmaking, Impact Measurement, New Philanthropy, Philanthropic Technology, Philanthropy, Social Media, nonprofits, nptech | Comments (37)

More Google Finance for Nonprofits

December 27, 2007 – 10:01 am

Someone at Google.org read my posts (here and here) about nonprofit information being available within Google Finance and invited me to meet with them early next month. If you have any thoughts you’d like me to share with them, shoot me an email or leave a comment.

Checking back on the Red Cross discussion I started on the Google Finance discussion board, I found a new reply. I commend the Red Cross employees who have taken a shot at my question of how they know if they are effective, but I’m a little shocked that so far the organization has be unable to provide even minor information related to whether they do a good job. “Hard Nose Philanthropy” is on the rise, nonprofits need to be able to answer a simple question like “Tell me how you know if you’re being effective”.

Does anyone know of any other discussions on Google Finance nonprofit discussion boards? Here’s the new reply from the Red Cross:

From: ike.pig…@gmail.com - view profile Date: Wed, Dec 26 2007 7:36 am

Hello — this is Ike, and I am a regional communicator for the Red
Cross.  I stumbled across this over the holiday break.

I understand what you are talking about, with regards to our internal
measure of “effectiveness.”  Unfortunately, you’re asking us the
equivalent of choosing a favorite child.

Such a metric would be arbitrary, and could be easily fashioned to
highlight whichever line of service we wished to justify.  In doing
so, number-crunchers would ask the question “Why in heck is Red Cross
involved in things that AREN’T as high-payoff as _______?”  Just look
at the numbers.  Why be involved in disaster relief when blood
provides the higher “impact?”  Or vice versa?

We’re dealing with two different dynamics here.  As a large multi-
purpose humanitarian organization, we’ve got a tradition being
involved in a number of different activities.  Disaster, blood,
service to armed forces, preparedness, first aid/safety, and some of
the international initiatives Maura described.  Whether we like it or
not, there is a significant slice of America that expects the Red
Cross to play a role in each of those arenas.  Public expectation
drives part of our mission.  In some circumstances, we have made a
promise to be there (like immediate disaster relief).  In others, we
end up getting involved because people think that’s what we’re
supposed to do, and no one else is stepping up (like the Safe and Well
website partnership.)

The second dynamic is our volunteers.  Some only have an interest in
disaster.  Some only want to teach first aid classes.  Some want to
volunteer to drive needed units of blood from the storage centers to
the hospitals.  As a volunteer-led group, we’d alienate so many people
who are truly volunteering their time to make it all work.

Are you really asking us to pick the one most effective line of
service, and do that to the exclusion of the rest?  Because applying a
universal metric to all the lines of service is an invitation to
starting feeding some and starving others.  That would be akin to
comparing the costs of helping 10 families in an apartment fire versus
10 single-home families spread out on different nights.  Yes, one is
more “cost-effective.”  That doesn’t mean it’s time to abandon the
rest.

I think the key element you are dancing around here is the way we
handle donations.  If someone wants to donate just to local fires in
their local chapter jurisdiction, we can assure that happens.  If
someone wants to donate just to Services to Armed Forces, their wishes
are respected and followed through.  We look at the business model of
each of those lines differently, asking first “Are we meeting this
mission?” and “Can we meet it more efficiently another way?”

From: sstannard-stock…@ensemblecapital.com - view profile Date: Thurs, Dec 27 2007 8:28 am

Thanks so much for jumping into the conversation. I’m not asking you
to choose anything. I’m just asking how the Red Cross tracks whether
you’re doing a good job.

For example, at my firm, Ensemble Capital Management we look at hard
numbers like revenue growth, assets under management and assets per
client. We also look at softer measures like visibility in the media
and online, depth of relationships with referral sources, and client
satisfaction. You can put good numbers on the first set, but not on
the second.

All I’m asking the Red Cross is how do you know if you are doing a
good job? What do you track? And how do you compare yourself? For
instance, what if I asked you why my money could do more good by
donating it to you than donating it to another similar organization or
even to FEMA? If an investor or prospective client asked me why I
thought that Ensemble was a better investment or firm to hire than our
competitors, I could speak to the issue for hours, citing both hard
data and soft qualities. I’m just asking the Red Cross the same
question.

By Sean Stannard-Stockton | Also posted in Effective Giving, Impact Measurement, New Philanthropy, Philanthropic Technology, Philanthropy, Social Media, nptech | Comments (8)

Lessons for Philanthropists

December 27, 2007 – 9:30 am

Social Venture Partners has been publishing a list of 10 Things We’d Like to Tell Every New Philanthropist on the SVP Blog. With permission from Paul Shoemaker, I’m republishing the lessons here. I think there is a lot of philanthropic knowledge currently concentrated in the hands of institutional funders. SVP is setting a great example by sharing what they know with the general public.

SVP makes the following note about the lessons: “This is written in the spirit of sharing knowledge and helping philanthropists be more effective. Every mistake articulated here has been made by all of us. The intent is not to preach a one-size-fits-all formula or to be arrogant in our viewpoints. Our sincere hope is that it will encourage reflection and stimulate lots of feedback, criticism, and conversation.”

Each lessons opens with a title that paraphrases a common misperception or mistake (you can find lesson #1 here).

Lesson #2 – “It is clear this non-profit needs my support more than the other. This non-profit might not survive without my contribution and that other non-profit has plenty of money.”

There are certainly times where urgent financial need is the right criteria for making a grant decision. But just as often it is not. When presented with this scenario, consider some questions – why are they in such dire need? Why are they so low on cash? Should I fund organizations based on financial urgency or on positive impact? Sometimes a non-profit might be in that circumstance because of poor cash planning, questionable program effectiveness, or ineffective fund development. The point is not to categorically reject or approve giving to an organization in need, but to take a little time to understand why that is the case.

On the flip side, philanthropists will sometimes shy away from funding successful non-profits with a strong financial position because they don’t “need” it as much. But why would we punish successful organizations? Isn’t that what we want? Organizations doing great work, with effective programs, and that have the ability to sustain and maintain funding over time.

Lastly, there can be a tendency for philanthropists to fund need instead of impact because one organization’s mission is more compelling than another’s. We all want to give to what we care deeply about and there is nothing wrong with that. While difficult to measure, at the end of the day the reason to contribute to a non-profit is to get improved academic outcomes, fewer teen pregnancies, a cleaner environment, and other positive changes in our world.

Lesson #3 - “I need to be careful to not let the non-profit get too dependent on my contributions”

Logically, how does discontinuing funding to a non-profit make them more “independent” or “less dependent”? There is a reality for most non-profits – they depend on funders (corporate, individual, public) for some or much of their revenue. To the degree that they have fee-for-service, or earned income revenue streams, they can become less dependent on philanthropic sources of funding. But discontinuing their funding is not an action that prevents or reduces their dependency per se. If a funder wants to improve a non-profit’s independence and long-term sustainability, they can focus on capacity building, longer-term and bigger grants, investing in outcomes systems, etc.

On a related topic – sometimes funders / philanthropists will be less likely to give to a non-profit with a strong net asset position, because “they are already financially strong enough and some other org needs my money more.” Yes, there is such a thing as too cash rich (e.g. more than 1-2 year’s annual budget amount held in Net Assets), but a non-profit’s net assets are its working capital, its investment capital, its buffer against the ups and downs of running any organization. It’s not money “just sitting around, doing nothing.”

Lesson #4: “The non-profit needs to be run more like a business and set specific goals …”

Like a lot of things in life, it depends on what you mean by the words “run like a business.” Sometimes the expression is used inappropriately and ignorant of the unique issues a non-profit faces. Three simple examples: 1) in most situations in the non-profit world, the “end customer” does not buy the product or service, 2) the usual economies of scale are often not present for non-profit direct service organizations, and 3) there is no clear “market signal” like earnings per share to guide and optimize where capital flows; in fact sometimes money can run away from successful non-profits because they don’t “need” it as much. Non-profits don’t need to be “run like a business” when it comes to mission, effectiveness and resource allocation, etc.

But when it comes to efficiency, operational processes, measurement, etc., non-profit organizations can learn important lessons from private sector business (and some certainly have). No matter how fuzzy or grey the social outcomes are, measurement is important.  How else do you know if you are realizing your mission? Areas like how to…do strategic planning, build financial / cash planning scenarios and tools, hire and retain quality staff…are all examples of domains where running a non-profit more like a business does make sense. In the end, the only reason to do so is to help the non-profit increase its capacity to be effective at achieving its mission.

P.S. By the way, private sector businesses could learn a lot from non-profits as well, but that’s another future topic altogether.

Lesson #5 — “I think philanthropists that are public and visible are just showing off with their money”

There are cases where that is true and certainly it’s a personal decision about how public or private to be about one’s philanthropy. More often than not, someone being more public or visible about their philanthropy is done for a reason, i.e. to show leadership and commitment to a particular cause. And to do so as a means to an end, to help raise more philanthropic capital. This is true especially for newer organizations and causes.

Like most things in this world in we each invest, we want to know who we are investing in (not just what). And knowing who the other “investors” are is an important signal that may guide our own decisions. Visible philanthropy might occasionally be motivated by arrogance, but more often it’s a signal of public leadership and commitment.

Paul S.

P.S. A lot of those people that are the most visible in their philanthropy in one realm are also very private or anonymous in other areas of their giving.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (0)

Trent Stamp: Transparency’s New Champion?

December 20, 2007 – 10:03 am

Trent Stamp just emailed me:

Sean, I have every intention of running the most transparent foundation in the world  I hope it’ll be a leader in its field.

My Charity Navigator bashing ends today. I told Trent that he has all of my support in his new job.

By Sean Stannard-Stockton | Also posted in Foundations, Philanthropy | Comments (0)

Trent Stamp Retires

December 20, 2007 – 9:51 am

From Trent Stamp’s, the CEO of Charity Navigator, blog:

Shortly after the New Year, I am leaving Charity Navigator, my happy home for the last 7 years, to become the Executive Director of the Eisner Foundation in Los Angeles. It’s a wonderful opportunity for me and my family and a chance for me to spread my wings and try something new, to see if I know as much about giving money away as I have claimed over the last few years. But I do not depart without great sadness at what I leave behind.

You can read the whole thing here.

I’ve been hammering at what I view as the flawed rating system that Charity Navigator uses. But let me say this about Trent. He knows charities. He will likely make a great executive director. He won’t just use overhead expense ratios to make grant decisions for the Eisner Foundation. Charity Navigator themselves always warned donors that expense ratios alone are not enough.

Here’s a “what if” for you. What if Trent Stamp decides to share with everyone why his foundation funds the nonprofits they choose? What if he releases detailed explanations of the research conducted and the analysis done? What if he uses his extreme media savvy to shine a light on how a foundation can operate transparently and by doing so increase their own impact? The Eisner Foundation is the foundation of Michael Eisner, the former CEO of Disney. So Trent should have public visibility if he chooses to seek it.

I wish Trent the best. I’ll follow his work in his new job closely.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Philanthropy | Comments (0)

Why GiveWell Matters

December 20, 2007 – 8:37 am

GiveWell and its co-founders Holden Karnofsky and Elie Hassenfeld are suddenly media darlings. Not many people are written up in both the New York Times and the Wall Street Journal on the same day.

Stephanie Strom at the New York Times writes up a great profile in “2 Young Hedge-Fund Veterans Stir Up the World of Philanthropy”:

Their efforts are shaking up the field of philanthropy, generating the kind of buzz more typically devoted to Bill Gates and Warren E. Buffett, as charities ponder what, if anything, their rigorous approach to evaluation means for the future…

Read the full article here.

Sally Beatty and Rachel Emma Silverman at the Wall Street Journal discuss GiveWell in their article, “Doing Due Diligence On Your Donations”:

Donors can readily compare charities from a financial perspective: how much an organization spends on administrative costs or fund raising, for instance. But givers, especially younger, business-minded ones, now tend to want more information on how successful a charity’s programs are in addressing the issues the charity sets out to resolve, from feeding the homeless to securing employment for the disabled. That’s especially important as the number of charities continues to grow, with about 1.4 million to choose from…

… And there are a growing number of groups whose aim is to make charity-effectiveness evaluations open to the public. GiveWell, for instance, was started this year by two former hedge-fund researchers who were frustrated by the lack of available information on charities’ results and impact. They research and grant money to organizations in specific topic areas that the group deems effective and post the results on their Web site. For example, when researching job-training charities in New York, GiveWell asked groups to provide data on how many people took advantage of the programs, what skills they were taught, what percentage of clients found jobs, what kind of jobs they found, and how long workers kept their jobs, says 26-year-old co-founder Elie Hassenfeld.

The article ends with this advice,

It’s also smart to see if the charity’s progress has ever been evaluated by a third party, rather than just the charity itself. Check the charity’s Web site or annual report for specific details on how it gauges its results. If the information isn’t there, call the charity and ask. Be wary about giving, however, if a charity doesn’t answer your questions or provide annual reports or other filings.

When the Wall Street Journal tells donors to be suspicious of nonprofits who won’t provide details of how they gauge their results, you know there’s a sea change coming.

When I first wrote about GiveWell in February and said, “Why are the young members of the GiveWell project doing more to improve our shared knowledge base than The Ford Foundation?” and when I wrote in April that, “Fringe players like Holden (Karnofsky) are actually the real change agents (in philanthropy).” I never thought that by the end of the year, the New York Times would be quoting a GiveWell team member saying:

“There are huge foundations out there whose job it is to find great organizations doing great things,” said Robert Elliott, a club member who is now the Clear Fund’s chairman, “but when you call them and say you’d like to leverage the information they’ve already collected to make a smart donation, it’s a closed book.”

The IRS is focusing more and more on accountability and efficiency in the philanthropic sector. But with GiveWell being featured in the New York Times, Wall Street Journal, Chronicle of Philanthropy and Chicago Tribune in the last week, you have to start thinking about the cultural norms that these reports are creating.

When the LA Times wrote about the Gates Foundation investment policy earlier this year, the article created more movement on “aligned investing” in the foundation world than the IRS would ever accomplish through years of committee meetings.

Will the next LA Times exposé question why foundations are not sharing their philanthropic knowledge with the public and why two 26-year-olds with no philanthropic experience and a tiny budget seem to be doing the most to help donors?

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Impact Measurement, Media, New Philanthropy, Philanthropy | Comments (12)

GiveWell in the Chicago Tribune

December 17, 2007 – 11:14 am

The Chicago Tribune has a long article about GiveWell on the front page of their business section today. I’m amazed. It is really wonderful to see an innovative startup like GiveWell get written up in the mainstream press.

By Sean Stannard-Stockton | Also posted in Effective Giving, Impact Measurement, Media, New Philanthropy, Philanthropy, Resources | Comments (0)

Google Finance for Nonprofits

December 17, 2007 – 11:10 am

I don’t know the inside story of how and why Google began including nonprofits in Google Finance. I almost wonder if it was an accident. Google pipes in data from Hoovers.com, which in turn has some limited info on nonprofits. Poking around Google Finance, I realized they also include profiles of cities (like this page for San Francisco).

The Google Finance nonprofit pages seem to not just be in beta, but appear to have not actually have been designed intentionally. For instance, the page on the Red Cross includes “Key Stats & Ratios” such as Net Profit Margin, which of course is not relevant for a nonprofit. The page also refers to “Related Companies”, instead of a more appropriate heading like “Related Organizations”.

So let’s assume for a moment that we have a bit of a blank slate to work with. If you were designing a template for the Google Finance nonprofit pages, what would you include? I was just cc’d on an email to Larry Brilliant asking him to consider some suggestions for what info might be made available on these pages and the sender is someone who is use to getting replies to his emails. So while we might have limited input into what Google eventually does, I don’t think this discussion is academic.

Here’s what I would like to see on the nonprofit pages:

Key Stats and Ratios: I would rename this “Key Stats” and not include any ratios. Displaying ratios imply that the ratio should be high or low, but very few ratios in the nonprofit world are all that relevant. In the for-profit world, most ratios include some sort of profitability number (not relevant to nonprofits), valuation metrics (not relevant to nonprofits) or are balance sheet ratios showing assets or debt (for nonprofits a big cash hoard can be viewed either positively or negatively). Instead, include info like: Fundraising Total, Total Budget, Total Employees, Endowment, etc. My strongest feeling is that the most important thing is for Google to avoid any mention of overhead expense ratios. Google has a chance to break the grip that overhead expense ratios have on donors and the media.

Overview: Right now, the Hoover’s profile is here. I’d like to see Google partner with someone more focused on the nonprofit sector than Hoover’s is.

Discussion: This is great. Don’t change a thing!

News: Recent headlines is a nice feature.

Blog Posts: Only some of the nonprofit pages include this section. This seems odd since I assume there must be only one template. But of course I would like to see this section maintained or expanded.

Related Companies: Calling this “Related Organizations” would make more sense. I think in this area Google should leverage their Map software and show me not only similar organizations, but local ones as well. If I’m looking at the Red Cross site from my home outside of San Francisco, I’d like to see disaster relief organizations that focus on the Bay Area.

Resources: This is a section I’d like to see added. Display links to GiveWell, Great Nonprofits, the nonprofit’s 990, the nonprofit’s website, a Wikipedia page, etc.

Video: Allow nonprofits to upload video content that donors can watch to get a better understanding of the organization.

Donate: Partner with Network for Good to allow donors to give directly to the nonprofit.

Contact info: Display contact info.

Blogging: Why not integrate with Blogger and offer a hosted blog to nonprofits to write their own blog?

Events: Include a list of upcoming events that the nonprofit is hosting or participating in.

Lastly, I’d like to see an area where the nonprofit can upload their own text about the organization as well as their answers to a set of predefined questions such as, “How does your organization track its effectiveness” as well as provide links to information such as mission statement, historical goals and what was actually achieved.

What would you like to see on the page? Leave a comment on this post and I’ll do what I can to get the suggestions into the right hands at Google.

By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropy, Social Media, nonprofits, nptech | Comments (10)