Taking donor responsibility seriously is hard work. Nonprofit organizations report no single bottom line. Since the objectives of organizations and the results they seek are so varied and value-laden, it is impossible to point to a simple calculus for performance measurement. Further, operating objectives and values that are important to one donor are not necessarily important to another. Is there a way for donors to make sense of this confusion? How do donors identify resourceful nonprofit organizations that do a good job performing work they believe to be important? Donors might start by seeking answers to the following questions about the nonprofit organizations they are interested in supporting.
Value Congruence—Are the values of the organization with respect to its mission, objectives, and treatment of employees, beneficiaries, and other publics congruent with mine?
Before donors go through the effort of understanding the operations of a nonprofit organization, they will first want to judge whether the organization engages in activities and approaches its work in a way that is consistent with their own values. They should review the organization's mission, objectives, types of beneficiaries, and employment and governance practices to make sure they are comfortable with its direction. If possible, and this is certainly practical in the case of local giving, they should visit the organization. Ultimately, successful organizations must convince donors to give regularly. Donors cannot become consistent givers unless and until they consciously identify organizations with values congruent with their own.
Objective Setting and Effectiveness—Is the organization committed to setting solid objectives, reporting accomplishments that correspond to those objectives, and assessing and reporting whether or not it is performing its work effectively?
Donors should assess whether the organization is truly committed to understanding and reporting its own operating effectiveness, e.g., documenting true progress in the accomplishment of its mission. How does the organization know it is doing a good job? Does it set reasonable objectives for performance each year and report its accomplishments clearly? As a good discipline before they give, donors should identify progress on important objectives that they expect will be realized or resolved before they are willing to give the next time.
Institutional Health and Capacity—Does this organization possess the financial health, managerial capacity, and enterprising orientation necessary to achieve the objectives it has set out for itself and evolve as a productive institution?
Once comfortable with an organization's operating objectives, donors should develop the further confidence that the organization's governance, management, and resources are up to the task it has set for itself. Financial analysis can be helpful in assessing an organization's resilience and strength; however, it does not reveal the extent to which an organization is a "learning," responsive, innovative, or enterprising institution. These latter qualities, while difficult to assess, are critical to predicting the beneficial impact a nonprofit organization may have upon its environment over time.
Accountability—Does this organization readily make its financial and operating information available to the public and respond quickly and graciously to reasonable requests for information?
We are all reluctant to place further demands upon the time of nonprofit staff who are working diligently to further their organization's mission. On the other hand, these organizations have a contract with the American people. In exchange for their good work and willingness to report regularly and publicly on their operations and finances, we grant them highly favored legal and tax status.
This is no idle exchange. The ready availability of reported information is critical in allocating society's resources, informing public policy, and ensuring the public's confidence in an entire sector. Despite the costs of disclosure, donors must continue to require it of all IRS-qualified nonprofit organizations. If an organization fails to respond to reasonable requests for information, it should be avoided.
Competing Organizations—What are the attributes of other organizations, if any, that share the mission and focus of the subject organization?
One last step remains before donors can truly give responsibly. If possible, they should identify and review other organizations that perform work similar to, or serve the same beneficiaries as, the subject organization. This final discipline will ensure that donors have done all they can to allocate resources effectively to the nonprofit sector. It may also uncover other organizations that warrant attention and support.
The preceding is a guest post by Buzz Schmidt, Board Chair, leads Community Wherewithal, a research, consulting and management practice formed to help citizens and communities establish more positively impactful enterprises, systems and capital. He founded and lead GuideStar USA and subsequently GuideStar International. These organizations report the work of the world’s nonprofit organizations at online repositories in several countries. He has served on the boards of several organizations, notably the Nonprofit Quarterly, Preservation Virginia, the Institute for Philanthropy (London), and the Permanent Fund for Vermont’s Children.