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Sierra Club Criticized for Governance Lapse in Deal with Clorox
A column in the UK-based ethics news magazine, The Ethical Corporation, exposes the problems many non-governmental organizations face instituting proper governance and transparency measures. Corporations often face more intense pressure to have high standards of corporate governance, and experience more backlash when they fail to meet them, than do NGOs. The Sierra Club, the world’s largest environmental group, recently struck a deal with Clorox for use of the Sierra Club brand name in exchange for financial support, a deal that was never discussed with most of Sierra Club’s employees. The Ethical Corporation columnist Jon Entine, argues how Sierra Club’s missteps can have serious consequences for its own initiatives.
Excerpts from this article are reproduced with permission from the September/October edition of the London-based global business magazine Ethical Corporation. For a free trial or to subscribe to the magazine email: firstname.lastname@example.org or go online www.ethicalcorp.com/subs/trial/
Transparency and accountability are double-edged. Embedded in an organisation’s culture they can burnish credibility and encourage progressive innovation. But if the promise does not match the practice, the greenwashing backlash can cause considerable brand damage.
Earlier this year, Sierra Club, the world’s largest environmental group, with more than 700,000 paid members, announced a deal to sell, for an undisclosed sum, the rights to use its brand label on Clorox’s line of Green Works cleaners produced without chlorine. The agreement went relatively unnoticed for months – even by the group’s own US-based volunteers. But now the proverbial dung is hitting the fan.
“It’s taking money from the devil,” says Peggy Fry, one of the volunteer leaders of the northern Michigan Sierra Club who resigned en masse in July. She discovered the partnership while surfing the internet. “No one asked for our feedback, that’s for sure. As far as the membership was concerned, it was cloaked in secrecy.”
The club’s national leadership has rebuffed requests by members and the media to release financial details of the agreement, further enraging members across the US.
The agreement has shaken other mainstream environmental NGOs, including ones that regularly engage in dialogue with business. Clorox has long been a pariah because of the alleged dangers in making chlorine-based products.
“We certainly wouldn’t have done it,” Rick Hind, legislative director for Greenpeace, told Ethical Corporation. Greenpeace has a strict policy banning product or company endorsements and a written “dirty business” clause preventing it from being aligned with companies whose core products are, by its judgment, harmful to the environment.
“It’s not as if Clorox has agreed to change the inherently dangerous process it uses for making its signature product,” Hind says.
The Environmental Defense Fund pioneered partnerships in the early 1990s, working with MacDonald’s to alter its packaging, including switching from Styrofoam to paper. Head of corporate partnerships Gwen Ruta says the fund wants companies “to benefit financially from environmental innovations we help develop”. She adds: “But we don’t endorse a company or a particular product and we don’t take payment from our partner companies – the environment is our only client.”
The Sierra Club executive committee’s move to endorse the Clorox cleaner appears to directly circumvent its own corporate financial acceptance policy, which baldly states: “The club will not endorse products.”
There is rebellion at the highest levels. “We have a national corporate accountability committee that’s empowered to deal with these kinds of alliances and they were not even told that this was in the works,” says an anonymous staff member. “It was rammed through by a faction on the board.”
The confronting corporate powertask force wrote: “We not only oppose the substantive decision itself, but condemn the undemocratic and autocratic nature of the decision. The process used to make this decision demonstrates a flagrant disregard for the basic democratic values, history and tradition of the Sierra Club.”
NGOs take brand risks in forging partnerships that are absolutely necessary in an ultra-competitive global marketplace. The stick of messy public criticism and litigation can only work if there are carrots. But key are transparency and internal democracy, which are doubly important for groups that depend on a network of volunteers and paid members.
“Sierra Club prides itself on its membership democracy,” the whistleblower told Ethical Corporation. “It would be helpful if we practise what we preach.”
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Key Anti-Corruption Lessons Drawn from Pilot Between the Asian Development Bank and the Partnership for Transparency Fund
The Partnership for Transparency Fund reported that it has completed a pilot program funded by the Asian Development Bank involving US$150,000 that has been used for grants to civil society anti-corruption projects in Mongolia, Pakistan and the Philippines. This is the first time that the ADB has ever engaged in a regional partnership of this kind in the anti-corruption area.
“These projects have made important contributions to the fight against corruption in each country, while yielding key lessons for future similar projects,” said Khalid Siraj, PTF’s program advisor.
PTF stated that the successful projects are likely to be sustained over time and key lessons learned from these Asian projects included:
- Small funding can be used effectively to mobilize civil society to tackle issues that are important for people’s well-being.
- The model used in this initiative worked well because of the complementarity of ADB’s macro and PTF’s micro approach of mostly limiting individual grants to just US$30,000 or less. This division of labor can also work elsewhere.
- The success of individual projects depends on the quality and commitment of the sponsoring NGOs. But at times they were in need of independent advice, both during project design and implementation, a role that PTF is well suited to play.
- Implementing anti-corruption initiatives can involves risks, but when successful, then the pay-offs can be substantial.
- Supporting such projects requires some degree of risk-taking, appropriately hedged by ensuring the quality and commitment of the proponents and the feasibility of the project.
The five projects are eminently replicable either in the same or other countries. Already, the cit administration “ECOLINK” project in the Philippines is implementing a follow-on project that builds on the success of its work in Oroquieta City involving two further cities. “Textbook Count,” the education project in the Philippines, has expanded substantially with many NGOs becoming mobilized to make a formidable difference in the effective and efficient supply of thousands of text books to children.
Read full PTF press release.
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Forming a Donor Monitor NGO
Article by David Lempert and published by Policy Innovations
The following are excerpts. See full article on the Policy Innovations website.
Money stuffed in envelopes for government officials. Gifts of cars, computers, and overseas junkets. Pressures to falsify reports and hide information from public oversight. Destruction of minority communities, cultural heritage, and the environment for productivity and profit.
The practices listed above occur in the UN system, international banks, donor countries, NGOs, and missionary organizations, and they have persisted and possibly worsened during the 20-plus years I have spent as an international development consultant. An understanding has emerged that protecting natural environments, creating stable and competitive economies, and promoting diversity, rights, and local cultures are all appropriate goals of development. Thus many NGOs do put the interests of the people in recipient countries first. But the reality is that their incentive schemes undermine what they intend to accomplish.
Given that there is almost no real direct accountability for any of the international development agents, either to their beneficiaries or to the international public, change is not going to come from within the organizations themselves. It needs to come from without, through new kinds of monitoring. Donor Monitors could regulate the development industry and its standards in each donor country and also monitor overall impacts for the recipients.
Up until now, development assistance has been viewed as an industry that either does not need any professionalism or that is too diverse in professional disciplines to fit any one standard. But the ethical obligations and public administration concerns are common across professions. Issues of accountability, transparency, reporting, and obligations to both the funders and the beneficiary communities can be codified and professionalized through the work of a development monitor NGO.
A strong independent monitoring organization that can use the international leverage of the press or the courts to sanction or pressure individuals and organizations in the development field could have a major impact on regulating development contracts, professional codes, methodology and standards, and benchmarks and indicators. This role would promote both professionalism and accountability. What are needed are clear models of contracts and whistleblower procedures, systematization of procedures, and collections of information that rate and expose those who do not live up to them.
While international donors continually call for more transparency among poor-country governments, their own contracts and accounting practices should be on file for full public review on every project, with monitors pushing the process toward detailed line items, so that everyone can see where the money really goes and why.
Improved professional codes also would be useful. If lawyers can be disbarred in the United States for failing to protect the interests of a single client, why is it that this principle does not apply when a development expert supports the violation of cultural or land rights or other community interests during a development project?
Simply standardizing some very basic procedures in development analysis would help to eliminate a large number of wasteful or corrupt projects. Requiring organizations to follow through with commitments and checking their analysis and compliance would establish a quality seal that would help contributors distinguish between real and useful projects and fraudulent or wasteful ones.
A Donor Monitor NGO would monitor development agents on three levels: their global impact, their national impact, and their overall professional quality. As this initiative strengthens, it can work to establish standards on particular types of project interventions and to offer quality ratings in a kind of Consumer Reports of development assistance. Whether by donor or by level of specificity of project, such ratings could be used to inform the public where they should make their contributions and where they should exert pressure for change, as well as to open avenues of scrutiny for the media.
I write this article in the hope of enticing existing NGOs to expand their missions into this area and to invite others to develop new NGOs and seek available funds. Given the multiples of current waste in development spending, it should be easy to demonstrate to citizen and public donors that good measurements and advocacy can save much more than it would cost to do this kind of work.
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Case Study: Corruption in Afghanistan’s Maslakh Aid Camp
Report estimates food that could have sustained 150,000 people was diverted by corrupt Taliban camp leaders shortly after 2001
In order to more effectively understand the seriousness of corruption in humanitarian aid assistance in Afghanistan, the Humanitarian Policy Group, under the Overseas Developement Institute, and Integrity Watch Afghanistan, published a report in July 2007 of corruption perceptions after the fall of the Taliban in 2001. The report, entitled “Corruption Perceptions and Risks in Humanitarian Assistance: An Afghanistan Case Study," investigated corrupt activities at Maslakh, an aid camp located just outside the city of Herat and one of the largest Internally Displaced Persons (IDP) camps in Asia. Based on numerous interviews, the report tracks the personal encounters both aid workers and beneficiaries had with corruption between 2001 and 2003. The results show massive and entrenched corruption at all levels of the aid process. The following is a summary of the findings.
Registration – In effort to control who could leave and enter the camp, check points were instituted, but it was suggested that teams who controlled the check points were not always fair in who they let in and out. Certain ethnic groups were targeted and non-IDPs were sometimes allowed to enter the camp to receive aid.
Camp Governance – Even after the fall of the Taliban, the camp structure retained Taliban leadership, which used its control for ensuring its own security and extending its authority. Camp residents commented, “there were no systems in place to reappoint the block leaders, once they were in place, it was very difficult to remove them;” and “in the whole camp there were 25-30 important block leaders and then there were sub-block leaders, these block leaders were pressuring us to give them a part of our aid package.”
Distribution – A complex network of camp leaders, non-IDPs, and outside merchants worked together to distribute aid toward certain groups of IDPs based on ethnicity or political alignment. Another beneficiary reported “In order to get sufficient aid for our family, we were obliged to buy many registration cards,” which became substantially more expensive after 2001. It was also reported that block leaders held people’s ration cards and were able to collect aid on others’ behalf, keeping a portion for themselves before handing it over to their block population. To make matters worse, a tax of beneficiaries would take place, which varied between one-third to one-half of distributed items and often depended on connection to social networks.
Return – The targeting of assistance back home was done on the basis of place of origin/place of return, ethnic association and ownership of land and livestock, all of which are difficult to assess and monitor and are at high risk of corruption, the report says. Corrupt contractors were often hired to transport camp residents back home. Transport cartels connected with powerful local rulers controlled prices for transportation, which aid agencies said they had no choice but to pay. Some returnees would even get off the truck halfway and return to camp to continue receiving aid.
Aid Workers’ Perspectives
Camp Governance – It was reported to be very difficult to break up the power alliances within the camp, which were established before the fall of the Taliban. Aid agencies tried to hold weekly public meetings and to set up complaint boxes, but to little effect. Aid agencies lost control over much of the registration process, a tool camp leaders used to exert their power.
Registration – Sometimes aid workers were pressured to give a portion of the food aid to the local Taliban government if they wanted to continue their aid activities in the camp. A common practice among the camp leaders was to inflate the number of camp residents in order to make more aid available to themselves. A census conducted in February 2002 revealed the population was only about half of the Taliban authorities’ claim of some 300,000, which implies that food adequate to feed 150,000 people had been diverted.
Assessments – This task ended up being left to camp leaders, who again used their influence to deny certain groups aid.
Scaling up – The number of international agencies working in Afghanistan was relatively small in comparison to other countries in states of emergency, as was the number of local agencies with whom international agencies could collaborate. Often, the selection of implementing partners for agencies was based less on the quality of the organization and more on the estimated likelihood of them being able to expend funding quickly. After the fall of the Taliban, agencies rapidly expanded, leaving a capacity problem. Many agencies resorted to social and familial networks, which lead many to report conflicts of interest in management.
Procurement – In the absence of effective governance and institutions of state, and the presence of widespread systems of patronage, nepotism and warlordism, it is difficult for outsiders to differentiate between legitimate and illegitimate processes and determine how to react when confronted with what appears to be corruption, the report says. Many examples of poor quality goods being delivered were given as well as incidences where the attitude was “aid agencies will pay anything “ for the goods they want, and will skip procedures for the sake of time. The use of receipts is meaningless as many retailers produced receipts on the spot for goods they do not even sell. To compound the problem, a proper judicial environment does not exist for workers to take action and the climate of violence and insecurity is such that tackling corruption proved very difficult.
Main Challenges Confronted
As the interviews were being carried out, a main problem that became evident was aid agencies that were “urgent to spend.” Seeing a post-war situation as a “state of exception” allows for a relaxation of monitoring policies and less transparency in the supply chain. Many times donors evaluate agencies on the basis of how quickly they can disburse their funds, which adds pressure. The report cites that according to the World Bank director in Afghanistan, an estimated 35 percent to 45 percent of aid was wasted in 2006. Another main problem is the long chain of upwards accountability that is hard to monitor and allows many opportunities for corruption. There has been an extraordinary increase in the number of NGOs operating in Afghanistan, and defining how each should operate under law has been very controversial and unsuccessful. A lack of state capacity, due to the unstable government, provides a poor environment in which NGOs can work. The amount of corruption perceived by both aid workers and beneficiaries contributes to the negative perception, both locally and internationally, that aid work is only interested in profit. The vicious cycle of poor state capacity and poor security, which contributes to difficulty in establishing proper NGO procedures, results in a devastating situation where the people who need aid the most are not receiving it.
The authors of this report hope that this realistic description of one area of corruption in humanitarian aid prompts more research questions and discussions as to how to better confront the risks on the ground.
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Are Social Enterprises Being Hindered By Existing US Laws?
New Aspen Institute Report Outlines Potential New Legal Forms to Encourage Social Enterprise Growth
In February 2007, the Nonprofit Sector and Philanthropy Program of the Aspen Institute, an international non-profit organization that promotes leadership and dialogue, released its paper Mixing Mission and Business: Does Social Enterprise Need A New Legal Approach?, written by Thomas J. Billitteri. The paper brings together the highlights of a September 2006, Washington, DC roundtable discussion of over 40 attorneys, investors, finance and tax consultants, and social enterprise group executives on the topic. While the exact definition of social enterprise remains ambiguous, it is broadly used to refer to organizations "that combine charitable missions, corporate methods, and social and environmental consciousness in ways that transcend traditional business and philanthropy." Reflecting proposals from the September roundtable, the paper seeks to answer the following questions: Are new legal forms and tax structures needed to accommodate social enterprise organizations in the US? Can existing laws be used or adjusted? Is the growth of social enterprises being hindered by traditional corporate structures and non-profit tax law?
Findings and suggestions from the paper include:
Compiling and Centralizing Data on Current Social Enterprises: Attendees of the roundtable agreed that the important first step to resolving the issue of taxing social enterprises is to "compile and make information on existing hybrid organizations publicly available, with the hope that a centralized source will lead to the development and testing of new organizational and financial models."
Creating a New Corporate Form or Change the Tax Code to Accommodate Hybrid Activity: Organizations are currently caught in a for-profit/charity model. Most attendees of the roundtable agreed that this model is insufficient for encouraging social entrepreneurship. For example, "
an idea that gained significant attention from participants was modifying the current tax code to include a new designation that would certify as "social benefit" both nonprofit and for-profit organizations that operate in a business-like manner and have an underlying charitable mission."
Employing a Limited-Liability Approach: One proposal from Robert Lang, CEO of the Mary Elizabeth & Gordon B. Mannweiler Foundation, involved allowing foundations, as well as individuals and government agencies, to invest in low-profit limited liability companies through buying an equity position or other means, such as loans: "Such investments would provide capital for socially beneficial activities such as keeping a small-town factory in business or building low-cost housing. A foundation could put money into the L3C through a program-related investment, then later sell its stake to another foundation or an individual donor and recycle the proceeds minto another PRI project. Profits made by the L3C could be used for its programs and also to pay modest dividends to its investors, who, in the case of foundations, could then use that money to make more program-related investments or traditional grants. If an L3C stopped pursuing its charitable mission, a foundation investor would have to divest its stake."
Modifying State Legislation: As corporations have a responsibility to maximize financial returns for shareholders, including a social mission in their mandate could require changing state corporate law. In the US state of Minnesota, for example, a bill has been introduced that would allow companies to adopt a “Socially Responsible Corporation” designation – with “SRC” instead of “Inc.” after their name -- allowing them to focus on both financial and social responsibility success.
Considering the British Approach: In 2005, the British government created a new legal structure that lies between corporate models and charity. "Community Interest Companys" (CICs) are limited-liability companies designed to use their profits and assets towards social goals. CICs must pass a “community interest test” to guarantee it acts in the public interest and file an annual report describing director payments, shares dividents, loan interest, and how it has engaged company stakeholders in its activities. CIC's must operate under an “asset lock,” that bans it from distributing profits its to members except when shareholders have own equity, in which case, returns to shareholders are modest and capped so that most profits are distributed to the broader community. Unlike charities, CICs have no unique tax breaks. Thus far, around 500 CICS are registered in Britain.
For the full paper visit the Aspen Institute's website.
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Key Report Promotes Improved Accountability Approaches for Philanthropies and Other Non-Profit Organizations
Management and Financial Scandals in This Sector Highlight Need for Reform
To download as .pdf
“Building Solid Foundations: New Approaches to Substantive Philanthropic Accountability”
By the National November 30, the National Committee for Responsive Philanthropy (NCRP). The Ford Foundation-funded report is written by Rick Cohen, former Executive Director of NCRP.
The NCRP is an independent non-profit organization founded in 1976 by U.S. non-profit leaders who recognized that traditional philanthropy was falling short of addressing critical public needs. NCRP conducts research on and advocates for philanthropic policies.
The report introduces guidelines to strengthen public trust in the philanthropic sector. It seeks to answer several key questions, notably:
- What is the substantive value of philanthropy?
- To whom are foundations substantially accountable?
Building Solid Foundations sifts through a sea of ideas and uses practical examples to provide a short list of suggestions that foundations, government, and nonprofits can implement together to improve the effectiveness of American philanthropy.
The report covers many topics in-depth - ranging from foundations’ influence on nonprofits to self–monitoring and self- regulation, to foundation payout percentages. Here in this excerpt, EthicsWorld highlights the issues and general recommendations, plus a list of proposals for democratizing foundation governance.
For the full report, follow this link.
Overview of Recommendations
Accountability & Social Justice
1. Despite being exceptionally undemocratic institutions, in that they are governed by a small set of generally very well off people with just about no mechanisms of outside review to call them to account for the utility and effectiveness of their expenditures, foundations can and should devote their half trillion (dollars) or more in tax exempt assets to promote democratic (small “d”) process and democratic participation. This nation’s non-profit sector represents a potentially powerful mechanism for giving voice to the disadvantaged and disenfranchised, but it won’t be able to do so if foundation resources aren’t used to build and support the non-profit institutions, particularly grassroots organizations, that represent people with the least wealth and least opportunity in our society and our economy.
2. That relates to a second recommendation, that foundation resources support the achievement of social justice goals and objectives in our society. Foundation resources can be used as competitive yardsticks demonstrating the best and most aggressive possible ways of redressing social and economic inequities in our nation, and supporting the organizations that call attention to and advocate for programs that tackle these inequities.
3. Finally, substantive accountability requires that foundations mobilize their assets aggressively and comprehensively. Currently, most foundations spend (as opposed to grant) 5% of their assets annually, and much of the spending is hardly reaching the organizations representing constituencies most in need. Regardless of the condition of the stock market and the returns they are getting on their invested assets, foundations can and should be granting (as opposed to spending) at a much higher level than they currently do, at least at 6% of their assets, they should mobilize their non-grant assets by investing them in non-profit and even for-profit instruments that produce social good (and not surprisingly generate decent market returns), and they should be giving nonprofits unrestricted “general operating” grants that they organizations can use to build their capacities, as opposed to tightly restricted “project-specific” grants that have so many strings that they prevent flexibility and creativity.
With the exception of the payout (5% or 6% question), these aren’t items to be legislated. They call on foundations to remember that the funds they control aren’t their private dollars. By virtue of the tax exemption, they are public dollars entrusted to private foundation trustees and executives for stewardship on behalf of the public good. It is only by maximizing that good and devoting dollars to where they can be best used with the most impact on people in need that foundations will truly be living up to their stewardship responsibilities.
Democratizing Foundation Governance
Substantive accountability expressed in terms of foundation governance can and should be a core objective of non-profit and foundation activists concerned that board diversity means more than adding non-family members. Other than exhortation and short of legislation, what can substantive accountability advocates do?
For starters, they can lay out an agenda and framework that foundations can and should follow to democratize the composition of foundation boards. Changes in the demographics of foundation boards, whose members largely pick and elect their peers and successors, will not come through evolution. Philanthropy can follow a more intentional agenda for changing the picture of their governing boards:
• Review and report on the foundation’s board demographics, much the way nonprofits increasingly do, to describe and understand the current board composition and how it compares to the general population, the foundation’s stakeholders and constituents, and most importantly, people and groups underserved in today’s economy.
• Call on foundations to meet with nonprofits inside and outside their funding circles to discuss the composition of the foundation board (or the composition of foundation boards in the local area).
• Identify organizations that are the best sources for linking foundations to individuals who might be effective foundation board members and credible representatives of the underrepresented constituencies in need of inclusion in foundation boards.
• Recruit and train new board members for foundation boards to not only understand the technical rules for foundation operations, but for representing and advocating for constituencies not well served in the sector.
• Conduct regular reviews of the board demographics in the foundation sector, working with regional associations of grant-makers and others to survey foundations, collect data, and identify the foundations whose policies and practices thwart the movement for democratizing foundation boards.
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What Works: Giving Donors Control
An article in the Spring 2006 issue of the Stanford Social Innovation Review addresses an ongoing debate over non-profit transparency and governance and the use of donations to pay for operational costs. The debate was, in part sparked by a scandal involving the American Red Cross in the wake of the 9/11 terrorist attacks. The organization received widespread criticism for allegedly not disclosing how much of its donations, which it promised donors would be used to aid 9/11 victims, it used to cover its own administrative costs. The scandal did much to damage public trust in the non-profit sector and many non-profits have responded by adopting more transparent disclosure policies, in which they inform donors exactly how much of their funding will be used to cover operational costs. Unfortunately, many have found that this can lead to a decrease in donor enthusiasm, many of whom would prefer that the entirety of their money go directly to victims.
In the Spring 2006 Issue of the Stanford Social Innovation Review Dan Gordon describes a simple but unique strategy that the United Way of New Mexico has adopted to solve this problem. As the article shows, its partnering with businesses to cover its administrative costs has hugely benefited not only the United Way of New Mexico, which increased its donations by 112% since implementing the program, but also the businesses involved who have enjoyed a deeper more rewarding relationship with the United Way and more visible and positive PR.
Giving Donors Control: A United Way Affiliate Has Boosted Its Fundraising By Breaking The Rules
By Dan Gordon
Stanford Social Innovation Review
At a time when donors are more concerned than ever about nonprofits using charitable dollars to cover administrative costs, the United Way of Central New Mexico (UWCNM) has implemented a fundraising tactic so simple its leaders wonder why no other United Way affiliate had tried it before. The Albuquerque charity entices area businesses to foot the bill for its annual administrative expenses. It can then tell individual donors that every penny of their donations goes directly to their chosen causes. The result is that contributions from both corporations and individuals have soared.
Some of the nation’s largest corporations have signed up to support UWCNM’s 8-year-old Corporate Cornerstones program, including Intel, Wells Fargo Bank, General Mills, and Lockheed Martin. In exchange for underwriting United Way’s administrative expenses, UWCNM mounts an extensive corporate recognition program – a public relations boon that businesses particularly welcome in an era of well-publicized scandals. Corporate Cornerstones companies, which must direct at least $5,000 in annual donations toward covering UWCNM’s costs, also provide advice and oversight to ensure that administrative spending is appropriate.
Promising individual donors that their entire pledge will go toward assisting needy people proved to be an attractive selling point. Although New Mexico is a relatively poor state, the Albuquerque affiliate raised more than $15 million from individual donations in 2004 – up 112 percent since 1997, which was the year before UWCNM implemented the Corporate Cornerstones program. Corporate gifts to UWCNM totaled $2.6 million in 2004, up 132 percent over 1998. By contrast, corporate gifts to United Way nationwide declined 4 percent between 1998 and 2004.
“There’s no question that the single biggest way in which nonprofit organizations compete for donors’ attention is by telling them about the percentage of a gift that’s going to be used for programming,” says Eugene Tempel, executive director of the Center on Philanthropy at Indiana University. Nonprofits are increasingly seeking unrestricted gifts and endowments from key supporters to cover administrative costs, Tempel notes, hoping to gain a competitive advantage by being able to tell other donors that all of their contributions will go directly to programming.
A Bold Idea Takes Shape
Corporate Cornerstones resulted from a fact-finding project that UWCNM launched in 1997. The project’s mission was to find out why people object to donating to charities in general, and to the United Way in particular. The agency found that two concerns top donors’ lists: nonprofits might use part of the gift to cover administrative costs, and donors might have no say in who benefits from the remainder of their pledge.
At a board retreat, then-chair Bob Jung pointed out that corporate contributions nearly equal the amount UWCNM spends on administration. “I argued that corporations understand the importance of things like balance sheets and profitand- loss statements better than anyone,” says Jung, who recently retired from Wells Fargo as the bank’s regional president for northern New Mexico. “So why not go to the corporations in our community and tell them that rather than just writing a check, they could fulfill a fiduciary responsibility as business leaders in ensuring that our United Way is well-run, and they could tell their employees that because all costs are already covered, they could get more bang out of their buck.”
“There’s always been a question among employees as to where their dollar is going,” says current UWCNM board chair Michael Stanford, CEO of First Community Bank in Albuquerque. Stanford notes that recent revelations of United Way’s excessive overhead and misuse of funds at the national level have only added to these concerns. “The genius of the Corporate Cornerstones program is its simple logic. If we as companies have skin in the game through our responsibility for covering administrative costs, we’re going to be more engaged in making sure United Way is run like we run our businesses. At the same time, it’s easier for the business community to understand the importance of administrative costs than it is for average givers, who just want to know that their dollar is going into helping their community.”
Board members initially met Jung’s proposal with skepticism. Some believed the idea to be no more than a shell game. Others were more concerned about perceived risks. “When you ask corporations to direct their gifts, you’re risking that they’ll direct it to someone else,” says Jack Holmes, UWCNM’s president and CEO. “And when you open up your administrative budget to corporate givers, there’s the possibility that they might not like what they see.”
But the board’s most immediate concern was what would happen if, after the agency announced the new program, corporate gifts failed to cover annual administrative costs. With that in mind, the UWCNM board agreed to the proposal on the condition that the organization had to secure sufficient corporate commitments before it announced the program.
Putting the Program Into Action
One impediment to getting corporations to cover administrative costs was that corporate donors also want the goodwill that comes with supporting programs. So UWCNM built an extensive corporate donor recognition program into Corporate Cornerstones. “This is much more than a plaque or a picture in the newspaper,” Holmes says. “Corporations can’t pat themselves on the back, but it’s very effective when someone else does it for them.”
Corporate Cornerstones members’ names are included on the program’s literature, which is distributed to more than 100,000 employees. They are also listed in UWCNM newspaper ads, on portable banners that are placed at community events, in UWCNM training rooms, which are used by 14,000 people each year, and in a prominently displayed sign in the UWCNM lobby. The UWCNM Web site lists members by their gift level, with links to the companies’ Web sites.
The fears that corporate donations wouldn’t cover UWCNM’s administrative expenses were never realized. In fact, says Jung, while it initially took some effort to convince companies that joining Corporate Cornerstones was in their interest, the program has become so successful that it now sells itself. Since 2002, Corporate Cornerstones contributions have exceeded the amount needed to cover annual administrative costs. (In 2003, UWCNM’s administrative costs accounted for 14.9 percent of its $12.9 million budget.) UWCNM is spending the additional funds on such initiatives as a center that helps nonprofits with training board members, fundraising, and strategic planning; a family violence prevention program; and a disease management database that focuses on diabetes, pediatric asthma, low back pain, and depression.
Under UWCNM’s new program, individual donors know that their entire gift goes to nonprofits, and they have the option of designating which nonprofits will receive their money. Donors can direct their entire gift to any nonprofit agency in the world. In UWCNM’s 2004 campaign, more than 2,000 nonprofits received designated gifts, the vast majority of them in New Mexico. Donors can also contribute to UWCNM’s Community Fund, which gives grants averaging $60,000 to more than 115 programs that assist the needy of central New Mexico.
The downside of not asking individual donors to cover administrative expenses, according to Tempel, is that it perpetuates givers’ beliefs that meeting these expenses is extraneous to the success of nonprofit organizations. “No organization can deliver effective programs without good planning, management, and evaluation, and those three things cost money,” Tempel says. “For organizations that seek a fundraising advantage by dedicating 100 percent of individual gifts to programs, there also needs to be constant donor education that administrative costs are very important.”
UWCNM believes it’s going that extra mile in educating individual donors about the importance of paying administrative costs, by publicly recognizing the corporations that are covering them. The organization is also educating United Way’s 1,400 affiliates about the Corporate Cornerstones program, but so far only the United Way affiliate in Boise, Idaho, has replicated the program.
“It really hasn’t caught on yet,” says Holmes. “We give presentations at regional and national United Way conferences and the reaction from people tends to be, ‘It won’t work in our community.’ They say they don’t have many major corporate headquarters, but neither do we. They say they don’t want such an open designation system. We tell them it doesn’t matter what they want – it’s what the donor wants that matters. If your product’s not good enough to compete in the open market, maybe you ought to change it.”
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AccountAbility - Size Doesn’t Matter in Stakeholder Reporting
A Model for Non-Profits
All non-profit organizations, regardless of size, can benefit from publishing reviews of their performance in stakeholder reports, according to AccountAbility.
The London-based standards developer and think tank has just issued its own report to stakeholders for 2004-2005 following extensive consultation with its stakeholders on how they think the organization is performing.
The report – known as The AccountAbility Accounts – assesses whether the organization has delivered against its stated strategic and operational objectives.
For the first time, AccountAbility has built an element of third party assurance into its reporting and responsiveness – the basis of Accountability’s AA1000 process in the form of a stakeholder panel. The panel reviewed the report in line with the principles of materiality, completeness assurance standard - to decide whether it:
1. focused on the most important issues for stakeholders;
2. addressed those issues comprehensively; and
3. responded appropriately to areas of concern previously highlighted by stakeholders
AccountAbility aims to have its annual report fully audited by external practitioners by 2007.
‘Non-profit organizations are often quick to demand that corporations be accountable to their stakeholders, yet frequently fail to demonstrate how they walk their own talk. Sometimes the excuse is that NGOs are too small and short on resources to report.
‘As a small non-profit of only 40 people, we hope that our example proves size is not an issue when it comes to stakeholder reporting,’ said AccountAbility MD Maria Sillanpaa.
According to AccountAbility, civil society organizations have much to gain from stakeholder reporting, including the opportunity to:
1. gain credibility and trust by providing tangible proof of their own accountability;
2. learn about the real impact of their work direct from stakeholders through structured;
3. adopt policies and processes for smarter working; and
4. ensure that their activities are in line with their mission
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Accountability in the Non-profit Sector as Seen by United Way
United Way of America is a major charitable organization that has had its own share of internal ethics scandals. It has moved ahead from these experiences and has important insights to share.
Statement: For the nonprofit sector, trust is the universal currency. To earn that trust, non-profits need to demonstrate more clearly than ever how we deliver on our mission, while operating in an efficient and transparent manner. Those organizations that deliver on these expectations will strengthen their reputations and increase their competitive standing. Those that fail to do so risk their very existence. The non-profit sector needs to become more market drive and more responsive to the needs of community investors, in addition to maintaining higher standards of accountability and transparency.
Answering the Wake-Up Call - Change is Necessary for America’s Nonprofits
By Brian Gallagher
President & CEO, United Way of America.
At United Way, we know full well the steep price that is paid when the public’s trust in a charity has been undermined and we also know apologies alone do not do enough to restore faith.
In recent years, a spate of scandals have involved some of America’s best known charities and according to a recent study by the Brookings Institution, confidence in charitable organizations stands roughly 10 to 15 percent lower today than in the summer of 2001. Only 11 percent of Americans believe that charitable organizations do a very good job of spending money wisely, which ranks almost two-thirds lower than the percentage who believe charities do an effective job helping people. No less troubling, the United Way’s own polling results find that merely 51 percent of Americans trust non-profits to do what they say they’re going to do with donations they receive.
The Senate Finance Committee has held substantive hearings on the governance and operational standards of America’s charities and among other considerations, are reviewing whether the IRS should review a nonprofit’s tax exempt status every five years to ensure that they continue to operate exclusively for charitable purposes. Multiple states attorneys general have urged their respective state legislatures to enact the local equivalent of Sarbanes-Oxley for nonprofit organizations, which would require CEOs of these groups to legally certify their financial statements. If we, as non-profit leaders, cannot or will not take the steps necessary to institute real change, we have no choice but to accept new legislation governing charities.
However, in a recent United Way Internet poll, we found that while trust in nonprofits is low, more regulation isn’t what a majority of people are looking for to increase their trust, since only 35 percent of respondents said they thought there should be more regulation of charities by the Federal government. The number one reason people don’t have faith or trust in the non-profit sector is that individuals don’t know how charities spend their money – 71 percent of respondents that don’t trust charities said their trust would be greater if they knew how the money was spent.
The fact is, today’s increased expectations of nonprofit organizations by policymakers and the general public actually constitutes a positive development for our sector. Those organizations that deliver on these expectations will strengthen their reputations and increase their competitive standing. Those that fail to do so risk their very existence. The non-profit sector needs to become more market driven and more responsive to the needs of community investors, in addition to maintaining higher standards of accountability and transparency. Good intentions alone don’t merit good will.
Accordingly, United Way of America established new Standards of Excellence, a comprehensive description of aspirational benchmark standards and best practices that are designed to enhance the overall effectiveness of the 1,350 United Way affiliates. They reflect the organization’s fundamental shift from its traditional role as a “pass through” fund raising organization to working with community leaders to identify and address long-term societal needs and improve people’s lives.
The release of the Standards of Excellence follows the implementation of new, stringent membership requirements for financial reporting and accountability. For United Ways across the nation, these standards reaffirmed the values of transparency, accountability and disclosure through compliance with our robust membership accountability requirements. However, over the last three years, there have been more than 50 United Ways that could not meet one or more of our stringent standards and have been disaffiliated.
Today, the primary measure of the United Way’s success is no longer the fundraising thermometer, but rather how well we deliver on our mission to make measurable improvements in communities nationwide. Local United Ways throughout America will offer an accounting of their operations against this key metric and we look to our investors, volunteers, partners and society as a whole to hold us to this higher standard.
(United Way of America 701 N. Fairfax Street, Alexandria, VA 22314
2006 United Way of America. All Rights Reserved.)
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Governance in the Non-Profit Sector
The Independent Sector is a leading U.S. umbrella organization for not-for-profit organizations. Its website includes an excellent section on accountability, funded in part by the GE Foundation.
“Public trust is the single most important asset of the nonprofit and philanthropic community. Without it, donors will not give and volunteers will not get involved. In recent years, the actions by some in the charitable sector have eroded the trust of the public. Thus, the sector as a whole is called upon to address these issues in order to maintain public confidence in its work. Leaders in voluntary and philanthropic organizations need to make a lifelong commitment to paying attention to ethical practices and responsible stewardship of resources.”
INDEPENDENT SECTOR recommends that each charitable organization take the following steps to demonstrate accountability. Adapt them to fit your unique circumstances, and check back for updates as the checklist is expanded.
- Develop a Culture of Accountability and Transparency
- Adopt a Statement of Values and Code of Ethics
- Adopt a Conflict of Interest Policy
- Ensure that the Board of Directors Understands and Can Fulfill Its Financial Responsibilities
- Conduct Independent Financial Reviews, Particularly Audits
- Ensure the Accuracy of and Make Public Your Organization’s Form 990
- Be Transparent
- Establish and Support a Policy on Reporting Suspected Misconduct or Malfeasance (“Whistleblower Protection Policy”)
- Remain Current with the Law
Statement of Values and Code of Ethics for Nonprofit and Philanthropic Organizations
The Independent Sector Statement of Values and Code of Ethics for Nonprofit and Philanthropic Organizations is intended as a model for use by nonprofit organizations and foundations nationwide. IS strongly recommends that all nonprofits and foundations have a code of ethics and provides this model as a tool to help them develop a code or review an existing one.
What You Can Do:
- Read the Statement of Values and Code of Ethics and share it with your board and staff.
- For organizations that have a code of ethics—Work with your board and staff to review your organization's code to ensure it covers the relevant areas mentioned in this model and addresses other elements unique to your organization. Make sure that you have a process in place to review adherence to the code on a regular basis.
- For organizations that do not have a code—Discuss with your board and staff the need for a code of ethics. Consider whether this model code can be adopted as is or how it needs to be revised to fit your organization's mission and structure.
- For all—Share your experiences and feedback with us so we can incorporate lessons learned into future tools and resources. Please email us at ethics@IndependentSector.org.
The process by which a code is adopted and implemented is just as important as the code itself. The board and staff should be involved in developing, drafting, adopting, and implementing a code that fits the organization's unique characteristics. We encourage you to set aside time in your board meeting or at a retreat to discuss in detail all aspects of an ethical code—and be sure that new board members understand and embrace your code of ethics and practices. In the coming months, IS will provide additional information to guide you in this process and share other resources that you may find helpful.
This document was drafted by a special taskforce of the Independent Sector Ethics and Accountability Committee, distributed to IS members for review over a four-month period from October 2003 through January 2004, and approved by the IS Board of Directors on January 29, 2004.
A code of ethics is, by necessity, general in outlining broad ethical principles. It is not a detailed set of recommended practices on a specific issue. In many cases, those more specific recommended practices are provided by existing standards of national, regional, and subsector-specific groups. (For a comprehensive list, please visit IS's Compendium of Standards, Codes, and Principles of Nonprofit and Philanthropic Organizations.) In cases where such standards do not exist or need strengthening, we plan to offer recommendations in the future. This statement of values and code of ethics is not intended in any way to duplicate or substitute for the work of organizations promoting standards of practice, but rather is intended as a model that organizations can draw from in reviewing or adopting a code of ethics.
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