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Arthur "Buzz" Schmidt Named Nonprofit Executive of the Year

 

Buzz SchmidtAs hard as he tries, Arthur "Buzz" Schmidt, Jr. can't help but look a little rumpled, even in a new suit. "One of our directors, who's always giving me a hard time about how funny I look, said, 'If you're ever successful at GuideStar, we're going to have to get you a new suit.' I don't think it's the suit, I think it's me," said Schmidt, the president of Philanthropic Research, which created GuideStar in 1994.
It seems fitting that GuideStar, which launched its long-anticipated electronic bounty of Federal Form 990 data on the Web on Oct. 18, is still growing into its suit. The much ballyhooed arrival of 990s on the Web will give the general donating public much more access to organizational information and—Schmidt hopes—empower donors to make decisions with their head and their heart.

As its most visible year in its five-year history closes, GuideStar expects to have upwards of 220,000 990s uploaded and available at its site. The scanned documents are in a readable PDF format, accessible at the GuideStar site (www.guidestar.org). The National Center for Charitable Statistics (NCCS), a program of the Washington, D.C.-based Urban Institute, has included 990s online, with its site geared toward research and public policy (nccs.urban.org).

For his role as the visionary and guiding light of GuideStar, Arthur "Buzz" Schmidt is the 1999 NonProfit Times' Executive of the Year. The annual award is given by the editors of The NonProfit Times in recognition of the executive who has had the most impact on the sector during the past year. In this case, not only will Schmidt's initiative change the way organizations look at the visibility of their primary federal informational document, it will make the sector's finances more transparent to the public at large.

Anticipating the future

Part of what makes GuideStar so significant is the requirement that organizations make their 990s widely available to donors, which became law on June 8 of this year. Proud of the role GuideStar can play in placing organizations on a level playing field on the Web and more visible and transparent to donors, Schmidt is quick to state that it couldn't have been accomplished without the help of influential partners such as NCCS, Independent Sector's research division, and the Internal Revenue Service, which scanned the 990s at a cost to GuideStar of $1 million.

He singled out NCCS as instrumental in accomplishing their shared goals. "They're every bit as responsible and should take credit as much as we do," he said.

Schmidt said the initial weeks after GuideStar launched the 990s have shown the Princeton University graduate the best and worst of times. "We've never had the traffic or the recognition. And the newspaper articles that have been written have largely (understood) what we're doing. A few of them have gone right for salaries and looked for dirt, which is not what we're about."

In addition to the high recognition, the launch of the 990s was fraught with logistical perils and several technological challenges—which tormented Schmidt and his team even before the forms went live. An article appearing in The New York Times the day of the launch, with links in the online version, directed so many people to the site it overwhelmed GuideStar, necessitating a second server.

GuideStar hired two additional full-time customer service representatives as requests to update information went from roughly 450 in a month to nearly 700 in the first four days after the 990s went online. That first week GuideStar recorded more than 430,000 page views—more than seven times a normal week.

That was the easy part. It became harder when some of the data received from the IRS included donor information, which was not intended for inclusion online. At first Schmidt thought the cases were isolated, but he directed his team to evaluate the situation and found three out of a randomly selected 100 included donor names. They've been redacting information since.

Before the pages went live, there was also the question of whether the social security numbers (SSN) of the preparers, which are listed on several 990s, needed to be included. Though an IRS lawyer recommended Schmidt include it, his statement was not necessarily IRS policy. Schmidt chose to purchase and apply a $30,000 software patch that blocks the SSNs from appearing. "I think it was a good investment in public confidence," Schmidt said.

NCCS and GuideStar have been working through the problems, as the organizations are looking at every document, checking and rechecking the pages to make sure no further donor information is released online. "It's controversial enough, what we're doing," he said. "The integrity of the system and the expectations for privacy are important to be able to continue it."

Marcus Owens, the outgoing head of the IRS's exempt organizations division, said putting the 990s online will open organizations up to a level of scrutiny they've never seen before. "Over the long term, I suspect it will change the way organizations look at what up to now has been purely a tax document," he said. "People are going to realize that, statistically speaking, the IRS will not be looking closely at their 990s." The local and national media, neighbors, employees and competitors, however, surely will, he added. "Answers that might have met the prevailing standards (for the government)," Owens said, "may not wash at all with neighbors or employees."

Russy Sumariwalla, a California-based consultant who has been working on a national project addressing the 990, said the impact of GuideStar's online distribution will be "in the long term, considerable." He hoped it would lead to more education and diligence in the accuracy of the information.

Dot-org

In this age of dot-com initial public offerings propelling cyber-pioneers into the economic stratosphere overnight, why is GuideStar a nonprofit? "That's becoming an increasingly difficult question to answer," Schmidt admitted. "As our capital needs mount up, it's going to be increasingly difficult to get the kind of responsive capital that we need."

Schmidt's vision and personal philosophy play an integral role in GuideStar's future. "What's most important to me is I'm really dedicated to trying to preserve or to build a level playing field and not leave any nonprofits out of this. And, that's expensive. It would be a whole lot less expensive to do just the top organizations, which is what donors think they want to give to, and not worry about the other ones. But I don't want to do that."

Looking at all options, Schmidt couldn't deny that circumstances may one day lead him to embrace some sort of for-profit mechanism for GuideStar. He said that he'd much rather have patient foundation capital. "Instead of raising money I could focus on responding to the state charity officials that want to work with us and the community foundations that want to work with us and the grants administrators that want to work with us and all the portals."

Schmidt said keeping the organization as a nonprofit and developing the site further will make it a resource the donating public can rely on. "It's real important, in what we're doing, to have as much trust as possible. But the realities that we're facing now, which really give me some pause, are that we see the emergence of a donor services industry."

The future of philanthropy

Despite the challenges, Schmidt believes the week of Oct. 18 will go down as a pivotal in the history of philanthropy. "For the first time in history the whole nonprofit sector was in one place. Just think about that; not just in one place on the Internet, one place anywhere for perusal."

He suspects that three times as many people who were able to get into the site tried to access it. "We could not handle that traffic," he said frankly.

That week also saw the launch of helping.org, an initiative of the America Online (AOL) Foundation, which directed donors to GuideStar. "You can imagine what went on Tuesday when we not only had to take care of the traffic that couldn't be handled Monday but what we anticipated for Wednesday. It was a full-court press. A bunch of AOL Foundation folks were all over our host server, and we were able to get the capacity to a decent level."

Quickly, Schmidt is aligning the site with other recognizable brands and organizations within the sector. As a part in helping.org, GuideStar is partnered with the American Red Cross, America's Promise—the Alliance for Youth, the Benton Foundation, Independent Sector, and the National Urban League. Schmidt added that he's discussed a relationship with the newly created Schwab Fund for Charitable Giving as well. "I think our funding will ultimately come from license fees," Schmidt predicted, "other intermediaries that are using our data or GuideStar reports in some co-branded fashion."

What did we do before ...

Before the World Wide Web was developed as a subset of the Internet around 1994, Schmidt was trying to find a way in which donors could make more informed giving decisions. "(The Web) just makes the whole idea (of GuideStar) work," Schmidt said.

He added, "You could not contemplate any kind of cohesion without databases, and you couldn't contemplate any kind of interactivity and building its value by nonprofits adding supplemental information, for example, without the Internet, without the Web. It's the enabling medium for a fundamentally different way of doing business in philanthropy. Maybe more in philanthropy than other areas."

The 990s online will not be the primary tool, Schmidt added. "It's a lever and it may be a confidence builder to support philanthropy. It's not going to be the information that drives donor proactivity. Our ability to digest pieces of it, make it more user-friendly, that'll help. But it's the supplemental information that'll be attracted around it that'll have a lot more impact—the anecdotes, the war stories, the images, communicating the effectiveness of the information in new ways—that will be the tool."

Ever the forward thinker, Schmidt thought GuideStar could spawn a new niche within the sector. "I think that as a result of what we're doing," he predicted, "there will likely develop a set of new evaluators of the industry." He expects such evaluators to take a very different approach than the Washington, D.C.-based Better Business Bureau or the National Charities Information Bureau in New York City, which primarily look through a fiduciary screen. "It'll be more on operations, more on effectiveness."

Said Schmidt, with a child-like grin, "If I have my way, people will be more concerned about how society is allocating its resources and (asking) 'How can I be a good resource allocator for society so that this money is going to effective outcomes for my community or something that I'm interested in.' ... That's a bit of a pipe dream."

But then, so was GuideStar not so long ago.

Topics: Nonprofit Times
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