Guest Post by Jacob Harold -- The Nonprofit Marketplace: Getting Social Impact Bang For Our Philanthropic Bucks

This is a guest post by Jacob Harold, a program officer at the William and Flora Hewlett Foundation.

In 2008, donors in the US made about $300 billion in charitable contributions to a total of around 1.5 million nonprofits. We call this huge flow of philanthropic dollars the "nonprofit marketplace." Unfortunately, the nonprofit marketplace doesn't work very well.

As a society, we aren't maximizing the social impact bang for our philanthropic bucks. The nonprofits that raise the most money are those with slick marketing campaigns or aggressive fundraising drives, not necessarily the organizations creating the most good. (Though that is not to say that nonprofits with slick marketing can't be effective--many are.)

The nonprofit marketplace doesn't exhibit the single most essential characteristic of a well-functioning market: open exchange of high-quality information that helps people make good decisions. The current economic crisis gives ample evidence of the consequences of opacity in a marketplace.

An individual willing to spend $300 on a digital camera can find better information than one ready to give $1 million to fight deforestation. You are much more likely to get a good answer to Canon vs. Nikon than The Nature Conservancy vs. Rainforest Action Network.

As Paul Brest discussed in a recent post, financial ratios are not by themselves enough information to make a good philanthropic decision. What matters is impact: lives saved, jobs created, species preserved. When direct evidence of impact is not available, we can use proxies: clarity of goal, strength of strategy, opinions of stakeholders, and interim data about progress.

At the Hewlett Foundation, we recently partnered with the consulting firm McKinsey and Company to lay out a roadmap to a stronger nonprofit marketplace. A detailed whitepaper and an active discussion can be found at www.givingmarketplaces.org. To make this system work better, we suggest that we will need cooperation from many constituencies:

- Nonprofits can be more open and explicit about what they're trying to accomplish, how they're going to get there, and how they track their progress.

- Banks, investment funds, financial advisors, estate attorneys, and others who help people interact with their money can help their clients and customers access good information and make good decisions.

- Foundations can proactively share what they're learning about nonprofits and social issues and support critical intermediary organizations like Guidestar.

- Search engines and other key e-commerce and technology companies can help organize information about nonprofit performance.

- Individual donors can take the time to make sure that they are making smart decisions that wring as much social and environmental good as possible out of every dollar they give.

- Intermediary organizations that organize the market can gather stakeholder opinions, develop open standards for sharing information, and collaborate in their efforts to weave together supply and demand.

The economic crisis may have numbed us to numbers in the hundreds of billions--but we should not forget just how much money is at stake here. We will only succeed in addressing complex problems like climate change, AIDS, or homelessness if we get our philanthropic dollars to where they will be best used.

Comments

[Julie1319]

The Better Business Bureau's Wise Giving Alliance dealt with some of these issues years ago when revamping the charity standards. Effectiveness is very hard to measure, as groups don't work on same thing. Also there is an ego element to many non-profits started by ordinary folks and celebrities alike. How does this address that? I personally like CharityNavigator for doing a pretty good job with rating and ranking charities.

[dadw5boys]

What is not published is the Salarys paid to the staff of Private Non -Profit Foundations.

Anyone seen the Income Statement of the Laura Bush Foundation, Lynn Cheny Foundation, or the Barbra Bush Foundation ?????

The Republican Congress voted to give each one of them $300,000,0­00.00 for thier foundations.

How much does Laura take for a Salary to run her Foundation ?
Lynn Cheny ?
Barbra Bush ?

What $200,000.0­0 a year ?

[schatsie]

I don't know who pays your salary, but think about this sentence.

Unfortunately, the nonprofit (make that forprofit) marketplace doesn't work very well.

Right now and for the last 30 years the marketplace benefitted the Million Dollar A Day Babies, the rest of us have lost our pensions, job security, family salaries, healthcare and now we face foreclosur­e....
Thanks to the for-profit­s...