Archive for the 'Donor Rights' Category

Debunking “Accountability to Donors” - Finale

Published
by
Hildy
on May 18, 2008
in Donor Rights, Funders, Fundraising and Stop Signs on the Road to Changing the World
. 0 Comments

We accomplish what we hold ourselves accountable for.

In wrapping up the past week’s rant about the issues related to Donor Accountability, I want to first share what triggered that rant. And then I want to share what we can do to hold ourselves accountable in a way that makes donors happy and, most importantly, makes our communities happy.

(If you have not read the posts leading up to this one, you can start at the beginning here.)

First, the trigger. It was a discussion at the always-thoughtful and thought-provoking Tactical Philanthropy blog. I appreciate Sean Stannard-Stockton for consistently raising issues that are important to the work we all do, and this was no exception.

Here was the question, from several months back: As we search for the keys to board effectiveness, should donors vote for nonprofit board members?

I won’t go into all the answers I had just to that one question - I think you all have had enough of my ranting to last quite a while!

But back to the issue of donor accountability - if demanding more donor rights is not the answer to the question of organizational effectiveness, then what is the answer?

And that answer is that we stop aiming at the symptoms, and start aiming boards at their potential. And then have them hold themselves accountable for that.

And what is that potential? It is no less than the community’s highest aspirations - the aspiration for our communities to be safe, healthy, vibrant, humane, joyful places to live.

Here’s the thing about the Donor Accountability Movement: It stems from the same frustration everyone seems to have about the work of this sector. It is the frustration reflected in the title to the book that yes, I promise, will be released this fall: Why Nonprofits / NGOs Have Not Changed the World and How They Can.

Donors and boards and everyone else want the same thing from community organizations - we want amazing places to live. To date, the systems this sector relies on fail to aim at that, and in some cases aim glaringly away from that.

But if we change both governance systems and governance culture, making it not only acceptable for boards to hold themselves accountable for creating the future of our communities, but making that the norm - then they will be accountable to their donors and everyone else.

Boards cannot accomplish “extraordinary” if they are wasteful and inefficient. And, more to the point, if boards are holding themselves accountable for creating extraordinary communities, donors will be excited and engaged, rather than critical.

Donors are a hugely important part of what makes our organizations work. They are, in fact, investing their dollars, their in-kind gifts and their time. And they are, in fact, frustrated with the fact that our communities do not seem to be dramatically changing.

Unfortunately, those advocating for donor rights are making the mistake of aiming their complaints at the money, rather than the results. But that does not invalidate their reasons for doing so. They want what we all want - better communities, and healthier organizations leading that charge.

And so, I propose the following:

If the board is holding itself first and foremost accountable for creating an amazing future for anyone whose lives are touched by the organization, and
If a board is making every single decision based on vision, mission and values, and
If that board is creating plans that aim first at the difference they want to make, and then at ensuring they have all the means to accomplish that,
Then our organizations will have far more than just happy donors.

Our organizations will have boards that are committed.

Our communities will have organizations that are energized.

And we will all have communities that are becoming all they have the potential to become.

The issue of where we aim our accountability is therefore the most important question any organization can ask. It is why I took a whole week of posts to debunk the current “wisdom” of accountability to donors. It is why I roam the country, teaching boards how highly practical and do-able it is to Govern for What Matters Most - holding themselves accountable for creating visionary change in their communities.

Thanks to you all for letting me rant this past week. In the next week or so, we will be assembling those points into a white paper. So please just let me know if you would like a copy, and we will get that to you!!

Debunking “Accountability to Donors” Part 6

Published
by
Hildy
on May 15, 2008
in Donor Rights, Funders, Fundraising, Healthcare and Stop Signs on the Road to Changing the World
. 0 Comments

Is the Donor Accountability movement correct? Should community organizations be aiming their primary accountability squarely at their donors?

Having spent the week throwing grenades at that notion, today’s is the last argument I will make before wrapping up this subject tomorrow.

(If you have not read the posts leading up to this one, you can start at the beginning here.)

Accountability for “The Money”
Now we’re at the heart of the matter. If organizations are to be held accountable to their donors, the only logical thing they could be accountable for is “The Money.” And if you ask a room full of nonprofit board members what they are primarily accountable for, that is the response you will get from many, if not most of them. “The Money.”

We know this because we have asked board after board. And almost always, that is their first reply - “The Money” - as if “The Money” were some special deity deserving of capital letters and quotation marks.

And as you have probably guessed by now, that is just not true.

As we saw in yesterday’s post, the corporate model actually points away from nonprofit accountability for “The Money.” So, then where does the logic behind “Accountability for The Money” come from?

Perhaps it comes from the law. Aren’t community organizations LEGALLY accountable to donors and funders? Aren’t they LEGALLY accountable for the money?

Well, no. Legally, community organizations are accountable for upholding the law. That’s it.

Now in some cases, the laws they must uphold may include contract law. For example, if there is a contract between an organization and a donor / funder / government contracting office, the organization must legally uphold its end of that contract, just as it would be legally bound to uphold any contract. But in those cases, it is not because the other party is a donor, but because there is a contract involved.

And so, short of ensuring that money is not used for an illegal purpose, the “legal accountability for the money” argument doesn’t hold any more water than the corporate argument.

Well what about tax exemption? In exchange for their tax exemption, community organizations must be accountable for the money, right?

Sorry - wrong again. Organizations receive their tax exemption for one reason: to provide community benefit. The prime example of that is tax exempt hospitals in the U.S., who often find themselves scrambling to put a cash value to the benefit they provide to the community. The IRS wants to know that the community is receiving at least as much in “community benefit” as the hospital is saving by not paying taxes.

Again - not the money; Community Benefit.

But just because it is fun to do, let’s take the tax exemption argument one step further.

If the reason an organization would be accountable to its donors has anything to do with the tax exemption the organization enjoys, then it stands to reason that the reverse is true as well - that donors are accountable to the organization.

Why? Because the organization is not the only one getting a tax advantage; the donor will receive a tax deduction for his/her gifts. And depending on the net worth and sophistication of the donor, he/she may get tremendous personal tax advantages for giving a particular gift in a particular way. So perhaps we should just leave the “tax exemption” issue alone…

Which all combines to leave us here:

IF accountability for the money is not an issue of legal accountability or the tax code; and
IF corporate accountability actually proves that organizations are accountable primarily to the community, rather than primarily to donors; and
IF it is almost impossible to discern to whom an organization would owe its accountability for a government grant; and
IF we have to think hard to determine why a cash donor should be the object of accountability over an in-kind donor or volunteer; and
IF we have to think just as hard, if not harder, to determine cut-off donation levels for varying degrees of accountability - and again determine what exactly that means;
And if we cannot for the life of us figure out to whom an organization would be accountable if it was fully endowed and did not have to raise money through donations or grants…

Well then maybe it is time to put to rest the notion that our primary accountability is for the money, and that we are primarily accountable to our donors.

Perhaps it is time to start looking not at the issue of accountability for the means - the money - but for the end results: community change. And perhaps it is time to start considering what could be accomplished if boards held themselves first and foremost accountable to their communities, rather than to their donors.

Tune in tomorrow, when I will wrap up this thread, by considering what is possible when we start governing for our potential to do amazing things in our communities, and stop aiming our boards’ accountability myopically at dollars and donors.

Debunking “Accountability to Donors” Part 5

Published
by
Hildy
on May 14, 2008
in Donor Rights, Funders, Fundraising and Stop Signs on the Road to Changing the World
. 0 Comments

As I have noted throughout this series, the notion that organizations are primarily accountable to their donors not only misdirects organizational focus, but it is fraught with logic holes large enough to comfortably house a family of four.

In my posts today and tomorrow - the last posts before I wrap this up - I will move away from the absurdity of that logic. Instead, I will aim these remaining posts at the faulty assumptions at the root of this whole argument.

(If you have not read the posts leading up to this one, you can start at the beginning here.)

Faulty Assumption: The Corporate Comparison
Both Corporate and Nonprofit Accountability are about the fiduciary obligation to represent the interests of others.

When we state that a nonprofit organization is primarily accountable to its donors, therefore, we are stating that the organization’s primary allegiance is to represent the interests of those donors.

If that is not enough to make one stop in one’s tracks, we must ask the next question:

What factors determine whose interests those organizations should be representing?

The most commonly cited factors in the “donor accountability” argument look something like this:
1) In a for-profit corporation, shareholders invest the dollars that allow that corporation to do its work.
2) In a Community Benefit Organization*, donors provide the dollars that allow the organization to do its work.
3) Therefore, because for-profit corporations are accountable to their shareholders, “nonprofit” corporations are accountable to the donors.

Seems airtight, doesn’t it? Unfortunately, it is not true.

Here is the reality:

1) One can only be held accountable for one’s own actions. Therefore, a corporation can and should be held accountable for the actions it takes.

2) The purpose of a for-profit corporation is to generate profits. The actions for which the corporation will be held accountable will therefore be aimed at that end goal - generating profits.

3) The shareholders will receive those profits. That is their return on their investment.

4) For-profit corporations are therefore accountable TO their shareholders, and accountable FOR taking actions that will provide the very most benefit / reward possible - the highest return on the shareholders’ investment.

5) Corporate accountability to shareholders, therefore, is NOT due to the fact that the shareholders provided the funds. The corporation is accountable to those shareholders because the shareholders will reap the benefit that derives from the corporation’s actions - the actions for which the corporation is accountable!

This is not a difference of semantics. It is, in fact, everything. Corporations are not accountable because their investors put the money in, but because the investors are the ones that will reap the rewards.

Which begs the question, “In the world of Community Benefit Organizations*, who will reap the benefit of what the organization does?”

Yes, it is the community - everyone, including the donors, but also including you and me and our neighbors and friends.

Therefore, the “shareholder / investor” argument does more than simply fail to prove that community organizations are accountable first and foremost to their donors.

The corporate analogy actually proves instead that community organizations are primarily accountable to the community they have promised to benefit.

************************************

Tomorrow, in Post #6, I will provide the last argument in this series - rooted in the biggest and most dangerous of all faulty assumptions. And then, on Friday, I will wrap up this thread with the moral of the tale, and suggestions for change. And I’ll do that all in time for Monday’s Rock-Out (which we will all sorely need by then!).

So stay tuned!

Curious about our use of the term “Community Benefit Organization?”

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