Phillips Oppenheim

A CALL FOR PUBLIC ACCOUNTABILITY

Headlines of corporate fraud within public companies, from Enron to Tyco to WorldCom, has prompted the US Congress to overwhelmingly pass federal legi

slation--The Sarbanes-Oxley Act (SOA)--providing for accounting reform, requiring more accurate financial disclosure and reporting from public companies, and focusing on the conduct of corporate officers. Though aimed primarily at corporations, the effects of SOA have spilled over to nonprofit organizations as well, causing them to more rigorously scrutinize their policies and procedures. This is largely because when nonprofit malfeasance makes the news--as in the recent example of PipeVine, a nonprofit middleman for individual donations that recently imploded in San Francisco after millions in shortfalls came to light--the entire sector suffers.

Both operating and philanthropic nonprofits are feeling the pressure. Former Senator Bill Bradley (now engaged with McKinsey's nonprofit practice) and others have been vocal about the sector's need to be vigilant in maintaining high management standards and overall institutional accountability. This heated environment has many nonprofits reviewing their fiduciary responsibilities and their board compositions, often hastening to increase the number of bankers, CPAs, lawyers and lobbyists, who can act as watchdogs on compliance, help interpret Sarbanes-Oxley, and monitor for conflicts of interest.

Phillips Oppenheim recently spoke with select clients, recruits and friends about how they're coping with the increasing demand for public transparency and accountability.

Carol Rasco , President and CEO of Reading is Fundamental (RIF) since November 2001, came to her position from the Clinton Administration, where she served as both Domestic Policy Advisor and as Director of the Department of Education's America Reads Challenge. A former elementary school teacher and counselor, Rasco was well suited to lead the nation's oldest and largest reading program, which reaches millions of kids with federally funded books. Rasco commented:

"Today's nonprofit organizations are being asked to be more accountable for proven results. Also, new program development is expected to be anchored in sound research. Luckily, RIF was already on this path, and could easily serve as an example of how innovative research leads to stronger, more effective programs.

"I have also noticed that my Board's Audit Committee has expressed a heightened sense of institutional responsibility. Partners of major accounting firms are on our Board. They make us stick to the rules. The Board closely re-examined it governance policies, paying particular attention to guidelines regarding conflicts of interest. We already had a good [conflict of interest] policy but we refined it following Sarbanes-Oxley, which was a wake-up call to everyone. For example, some board members sponsor RIF activities in their companies. Now the entire board must decide whether any such proposed activity represents a conflict.

"And responsibility for accountability doesn't stop with our Board. RIF's external auditors conducted compliance workshops for our staff as well. Both RIF's Board and staff sign RIF's policy every year. And RIF's 125 staff members all get training on how to identify improprieties."

Sarbanes-Oxley is "a wake-up call to everyone to scrutinize policies and procedures."

—Carol Rasco, President/CEO, Reading is Fundamental, Inc.

"What's happening is a very good thing for the sector," says Vanessa Kirsch, Founder, President and CEO of New Profit Inc.--venture capitalists for the nonprofit field. "The changes and demands for increased accountability are being driven not only by donors, but by nonprofit leaders across the board. Nonprofit leaders are looking to analogs in the for-profit sector and asking themselves—What can we learn from them? How can we be more focused? How can we employ better measures of our success? As donor resources, both public and private, continue to dwindle, nonprofit organizations must become more focused to remain competitive. We must continue to be clear in our missions, which often means doing fewer things, better. Assessment, measurement, and accountability are important to this process."

[New Profit was one of the first nonprofits to use the Balanced Scorecard, designed by Robert Kaplan at Harvard Business School, to measure performance among its grantees. Many other nonprofits now use this measure.]

"The Scorecard", says Kirsch, "lets us show donors on a quarterly basis how our organizations are performing. We review our grantees' social impact, number of constituents served, and other measures such as test scores, financial growth and improvements in organizational efficiency. Kirsch continues, "The main critique that continuously emerges through this assessment is that organizations have either lost focus or tailored their programs to available funding. In tough times it's most important not to try to do too many disparate things. The most effective nonprofits have figured out their market, and are clear about how to deliver impact and effect social change. That is growth capital."

"In tough times, it's most important not to do too many things."

—Vanessa Kirsch, President/CEO, New Profit Inc.

Last December, as the Doris Duke Foundation approached its fifth anniversary, President Joan Spero decided to borrow a page from her background in academia in addressing the issue of institutional evaluation and accountability. She formed several panels of "wise persons" to act as visiting committees charged with the task of 1) evaluating the Duke Foundation's past grant making and 2) advising on future directions.

"Our financial resources are smaller than when the foundation started," noted Spero. "We therefore needed to thoughtfully evaluate how we had progressed as a grant making entity and how we could continue to have a real impact with less money. We asked our visiting committees to look at both current and future plans.

"Six to eight distinguished leaders comprised each panel, recruited from Duke's grantmaking fields--the arts, environment, medical research and child-abuse prevention areas. Our staff prepared and disseminated to the panels extensive briefing materials on the Foundation's strategies and initiatives. We also provided a rapporteur for the all-day meetings. Through their questions and observations, the panelists challenged us to assess whether or not we were ‘on the right track'…'poised to make a difference.'

"The resulting reports, presented to the Foundation's staff in April and to our trustees in May, are being used to tailor Duke's strategies. The panels advised us on how to make better use of our funds, including recommending the elimination of some programs. They strongly admonished us to keep our focus on core programs.

"I found the process to be very useful. The foundation community is not driven by the ‘supply and demand' of a marketplace. I therefore believe in external reviews."

" To be accountable to the field, it was necessary for us to reposition and adjust our strategies to the new environment. "

—Joan Spero, president, Doris Duke Foundation

Michael Bailin , President of the Edna McConnell Clark Foundation, spoke in February at Georgetown University's Center for the Study of Voluntary Organizations and Service. In his address, "Re-Engineering Philanthropy: Field Notes from the Trenches," Bailin noted that:

"We are in a period of especially profound re-thinking about the purpose and potential of foundations, about what grants are for and why grant-making institutions are valuable," a process he compared to the re-engineering of American business in the 1980s. "Foundation soul-searching," he says, "may be more intense than at any time since the late 1960s and early ‘70s."

As a concrete example, Bailin described the changes he has instituted at the Edna McConnell Clark Foundation:

"When I arrived, the Foundation was dedicated to reforming the great delivery systems of public service. But in all of those programs--in education, justice, child welfare and neighborhood improvement--we were trying to reform huge, complex, entrenched, multibillion-dollar public systems, with a staff of 25 people and around $25 million a year in grants.

"We've now changed our strategy to that of concentrating on nonprofits that are doing the best work and getting results within those public systems. For us that has meant helping the best youth development programs to expand their services, strengthen their infrastructures and track their results more accurately by using information about outcomes. Narrowing our funding interests further--to out-of-school programs--we focus on $1 million to $10 million organizations that deliver educational attainment or achievement, preparation for work or self-sufficiency, civic engagement and/or avoidance of harmful behaviors. The foundation also reviewed its own staff for solid grounding in management, and its grantees for compatibility with this new direction."

"We also retained the Bridgespan Group, a nonprofit management consulting firm, to help us refocus our selection process around better due diligence. These reviews entail Bridgespan spending 100-200 hours on site with each potential grantee organization, examining the organization's financial health, leadership and management, and measurement of outcomes. If it seems that the nonprofit would collaborate well with the Foundation, a planning grant follows to achieve something more like a plan for setting up and running a small business. It is a slow, difficult and sometimes contentious process, but we firmly believe that it will help the foundation avoid the ‘perils of careless growth' and will lead to better outcomes for young people and their communities. Investing in the best nonprofits, will help them lead the way for other youth development organizations, and result in a better and stronger field."

"We are in a period of especially profound re-thinking about the purpose and potential of foundations…"

—Michael Bailin, President, Edna McConnell Clark Foundation

 

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