President's statement: creating an online information marketplace  (Page 4/4)

Aggregating information to inform donors

Several major components of a system to inform nonprofit donors’ investment decisions already exist:

GuideStar publishes a Web site that presents organizational and financial data from the IRS 990 forms of all 1.5 million nonprofits in the United States. GuideStar could providethe core of a system, especially if its database expanded to include non-financial information.

DonorEdge provides strategic, programmatic, organizational, and financial data about 2,500 nonprofits in the Kansas City area. DonorEdge was created by the Greater KansasCity Community Foundation (GKCCF) for individuals maintaining donor-advised funds there. GKCCF has made its software open source and has been active in sharing withothers; nine other community foundations across the country have now begun to implement the system. A visitor to the DonorEdge Web site will see five pages ofinformation on each organization:

• General information page

  Mission statement, recent accomplishments, needs statements, background statement on the context of the organization’s work, CEOand Board Chair statements

• Programs page

  (for each separate program): Description, budget, target population, program long-term success definition, program short-term successdefinition, program monitoring plans, examples or evidence of program success

• Financials page

  Revenue by source for last three years, resource allocation for last three years, assets and liabilities, short- and long-term solvency ratios,financial comments from staff

• Management and governance page

  List of board members with affiliations, board demographics, data on frequency of board meetings, board meetingattendance, board term limits, board structure, strategic plan timeline, risk management policies, staff and volunteer statistics, bios of key staff

• Supporting documents page

  IRS 990 form, IRS letter of Determination of Tax Exempt Status

GlobalGiving is an international analogue to DonorEdge that provides information about particular projects in developing countries. Its lively interface offers donors a setof projects to invest in, ranging from planting nitrogen-fixing trees in central Kenya to providing vaccinations for children in Cambodia. Each entry includes basicinformation about the project’s goals, strategies, and its sponsoring organization’s financial health.

Keystone helps an organization gather information from its stakeholders to guide it as it formulates strategies, makes tactical decisions, and assesses results. GreatNonprofits captures the views of an organization’s volunteers. These relatively new ventures suggest possibilities for providing donors with a broad array of stakeholderinformation, giving the nonprofit marketplace the extraordinary openness that Web 2.0 has brought to other realms through such innovations as eBay, Wikipedia, and userreviews on sites maintained by Amazon and Zagat. Indeed, foundations themselves could be valuable sources of information available to other donors.

New approaches to capturing and sharing information will surely emerge over the coming years, and the development of a comprehensive system will inevitably beincremental. On the whole this is fine, but there is one incremental step that carries significant potential for doing more harm than good: evaluating an organization basedon its administrative and fundraising costs without taking into account the social benefits it produces.

Such ratings erroneously imply that a donor can assess an organization’s administrative costs in isolation from its effectiveness. This is the equivalent of looking at only oneside of a corporation’s financial statements. No less than in the private sector, a nonprofit organization should seek not to minimize but to optimize its costs so as tocontribute net value to its mission. An organization may have low administrative costs and produce little of value. Indeed, some organizations with low costs may be underinvestingin back-office functions that not only serve their goals but provide public accountability. In the business sector, low investment ratios at certain stages of anorganization’s development would make investors nervous, not excited.

If we build it, will they come?

Some donors seem more interested in funding innovative programs with immediate visible impact than in achieving long-term, sustainable results. Some have lowexpectations of nonprofit organizations and treat an honorable mission as a substitute for impact. And doubtless some donors are motivated more by relationships and recognition than by achieving results. More fundamentally, personal philanthropy maysometimes be so profoundly emotional as to be invulnerable to rational analysis.

Therefore, as we move forward we will need to better understand the psychology of giving and to make connections between thoughtful, strategic giving and achievingoutcomes in a way that will motivate donors. But it is at least worth hypothesizing that many donors do not seek information to guide their decisionmaking only because theyare resigned to its unavailability. To help test that hypothesis, the Hewlett Foundation is supporting many of the projects mentioned above.

The results may well be critical to the success and sustainability of a nonprofit information marketplace and ultimately to the effectiveness of the nonprofit sectoritself. If someday we are all successful in providing donors with better information to make better philanthropic decisions, the beneficiaries will be high-performingnonprofit organizations and the people and communities they serve.