Roundtable Discussion: Part II

Nonprofit Executives Discuss the Characteristics of High Performing Charities

You can read Part 1, Charity Leaders Discuss Fundraising in the Down Economy, here. 

The Contributors

John Butler Director of Marketing, African Wildlife Foundation	Jeremy Kohomban Ph.D., President and CEO, The Children’s Village	Nicholas Torres President, Congreso de Latinos Unidos	Susan Paresky Senior Vice President, Development, Dana-Farber Cancer Institute & The Jimmy Fund	Curtis Hail President, e3 Partners Ministry
Robert Egger Founder and President, DC Central Kitchen	Deanne Pearn Co-Founder & Chief Development Officer, First Place for Youth	Angel Aloma Executive Director, Food For The Poor	Beth Stevens Vice President for Development, Institute for Justice	Jay Jacobs Chief Executive Officer, Summer Search

The Conversation

Charity Navigator: The newly designed Form 990 asks more questions about a charity’s governance and management practices. Has this had any impact on your charity’s policies and procedures?

John Butler: At this time the revised Form 990 has not resulted in AWF needing to change or adjust policies or procedures.

Jeremy Kohomban: No, we knew these questions were coming and beginning in 2007, we prepared for them as a Board and in conjunction with our Auditors.

Nicholas Torres: We’ve just build in more of an infrastructure to be more transparent and communicate more regularly to our stakeholders.

Susan Paresky: These changes have not affected our policies and procedures because we have always been diligent and thorough in our reporting, as well as transparent with our governance and management practices.

Curtis Hail: It has added considerable cost to our annual audit and Form 990 preparation fees, to say nothing of the vastly more involved work by our CFO in organizing the information. We were already in full compliance with ECFA and IRS rules, so the new 990 has not materially impacted our policies—just our work load.

Robert Egger: No.

Deanne Pearn: Not directly, but perhaps indirectly. We have a strong Governance Committee of the Board that stays abreast of these questions and ensures that our policies and procedures are up to standards. They refer to guidelines in the 990 and respond if needed.

Angel Aloma: No, the newly designed Form 990 has not required much of us above our good business practices already in existence. We hold ourselves to very high standards and that is reflected in our cost ratios and in our ‘watchdog’ ratings.

Beth Stevens: The new 990 prompted us to put in writing already existing policies and procedures (such as our procedure for determining compensation of officers and other highly compensated positions) and sped up the implementation of others that were already underway (such as the record retention policy).

Jay Jacobs: Our board and management team have been proactive in reviewing policies and procedures on a regular basis. That said, the new questions in the Form 990 help provide credibility to our external donors and clients. The best component of the new form is that it asks us to describe the process we use to review the Form 990 with our board before we file. Describing this process in written form will increase the organizations level of accountability and transparency.

CN:  What do you think are the most critical indicators (on the 990 Form or not) that a donor needs to know to be assured the charity is ethical and has good governance and management practices?

John Butler: While 990s are certainly valuable tools, they provide a very limited view of a charity. Various outside organization’s provide expertise and unbiased assessments of a nonprofit’s performance and can provide much more meaningful information to a donor when assessing whether a charity is ethical and maintains effective governance and management practices.

Charity Navigator is one mechanism to demonstrate that a charity is ethical and well governed. It is based on a star-rating system that is determined by Charity Navigator’s review of the organization. For the 8th year in a row, AWF has received a 4 star rating from Charity Navigator, the highest rating possible.

Jeremy Kohomban: To me the most critical improvement in new Form 990 is the increased transparency the form brings to the donor. My top 5 critical indicators from a donor’s perspective are:

1. How much does the charity spend on Program, Overheard and Fundraising?
2. Where does the Charity’s money come from?
3. Did the Charity engage in any self-dealing activity? (e.g.: with trustees etc)?
4. What’s the change in net assets?
5. Does the Charity lobby?

Nicholas Torres: Audits and other key information is posted in public places (website).

Susan Paresky: Anything that shows transparency should be a critical indicator. Donors should look at the charity’s total revenue streams and expense lines. They should pay particular attention to the cost of funds raised to ensure that the charity is efficient with their money and the maximum amount is supporting the mission and program.

Curtis Hail: As a former CPA myself, I happen to believe there is very little in a Form 990 to give assurance to the donor regarding good governance and management practices. An organization can be in full compliance with the questions and still be poorly managed, unethical or under-achieving in the single most important category – results toward the Mission.

Robert Egger: The 990 features the highest paid employee---I’d suggest also noting the lowest paid, with a ratio difference. I think it’s indicative of culture/ethics at work.

Deanne Pearn: The most important question a donor should ask is “is this organization having an impact with the population it serves?” This means moving away from tracking outputs (like number of people who a shelter bed or attended school) to outcomes, such as number of people who moved out of homelessness or graduated with their high school diploma. These outcomes should be held up against baseline information to determine if an organization is able to move the needle on a difficult problem.

Donors should also look at an organization’s governance and management structure to see if it is sufficiently staffed with a deep enough pool of talent. An effective Board generally has a finance committee, governance committee, and resource development committee. 

In addition, donors would do well to examine the infrastructure of an organization and assess whether or not an organization is making sufficient infrastructure investments to promote the long-term health of an organization. Donors should be wary of administrative/program cost ratios that are too low as it may be a signal that an organization is short changing infrastructure investments (like appropriate accounting staff or computer systems) to keep an organization healthy.

Angel Aloma: Thanks to our Food For The Poor’s good governance and management practices, we have high efficiency ratings from ‘watchdog’ organizations and Forbes magazine, as well as an administrative cost ratio of less than 4%. We have experienced a high degree of growth even during the difficult economic situation of the past year.

Beth Stevens: The charity spends at least 70 percent of its funding each year on programs. If its revenue is $1,000,000 or more, it has an independent auditor review its books. It shows, through regular updates to its donors, that it is advancing its mission (and thereby fulfilling donor intent). The charity isn’t intentionally sitting on more than 200% in operating reserves; if it is, it can explain why (e.g., it received a $10 million bequest in a year when its operating budget was only $3 million). 

Jay Jacobs: The additional disclosures on the 990 that require confirmation of critical policies, procedures and financial controls are very helpful. They also now ask new questions regarding the organization’s accounting methods and oversight of the audit or review and selection of an independent auditor, which are also useful. 

Outside of the 990, donors should look at historical trends with metrics such as the overhead rate ((Admin + Fundraising)/Total expenses) and the organizations rationale for why this rate is appropriate. Also, how does the organization measure the cost effectiveness of fundraising (Total income/Fundraising expenses) and the cost per mission and outcome?  When expenses increase, is there a link to increase in service or a clearly articulated investment in long-term capacity. In short, can the organization tell its financial story in a transparent, clear and consistent manner?  

CN:  Do you have a charity wide performance management system? Do you have outcome indicators?

John Butler: Regarding our programmatic performance, AWF uses a Performance and Impact Assessment (PIMA) scorecard. The PIMA framework represents a series of measures that quantifies AWF’s progress against our four main pillar programs: species conservation, land protection, conservation enterprise, and leadership capacity.

Jeremy Kohomban: Yes, and Yes. Absolutely critical for any charity these days. We have these indicators broken down both by program and by financial.

Nicholas Torres: We have a performance management system but are still aligning it with the agency outcome indicators (it’s primarily a technology challenge).

Susan Paresky: We do have a performance evaluation system that we take very seriously. All staff are measured annually against goals, as well as on an ongoing basis throughout the year so there are no surprises. We are committed to working together to address weaknesses so they can become strengths.

Curtis Hail: Our Cabinet consists mostly of those responsible for the major divisions of the ministry, both the field ministry (programs) and the internal administrative functions. The Cabinet convenes monthly to review results, solve problems and seize opportunities, culminating in an annual Fall planning retreat where past performance is evaluated and future plans are made. We routinely evaluate the 8 Vital Signs of e3 Health:

• Number of volunteer short-term missionaries registered for 150 annual trips
• Number of believers trained for evangelism, discipleship and church planting
• Number of people evangelized and making professions of faith in Christ
• Number of churches planted; initially and residually
• Revenues and expenses to budget
• Cash flow projection
• New donor acquisition (and lapsed donor info)
• New staff applications (and exiting staff info)

Robert Egger: We have attempted to be as transparent and measure oriented as possible, and we use our written and on-line venues to give easy access to our systems.

Deanne Pearn: We use Social Solutions’ Efforts to Outcome performance management system and have done so for about two years.

Angel Aloma: Food For The Poor has an active Governance Board, an independent Audit Committee that reports to the Board, a fulltime internal auditor, externally audited financial statements, an annual report, and a 990 form which is readily available to all who request a copy. We have long-term strategic plans, departmental and organizational budgets, and statistical reporting that allows us to evaluate our initiatives. Our field staff monitors and evaluates the impact of our programs and self-sustainable efforts.

Beth Stevens: We measure our success by the number of cases in which we achieve favorable outcomes through litigation, legislation, or settlement. In addition, our president informally tracks other metrics integral to our success (these include the number of cases added, removed, or ongoing each year; the quality and quantity of media appearances; the size and import of rallies; how well we apply our strategic research program in litigation, media, and academia; the number and quality of applicants to our training programs; the number, if any, of board meetings where one or more members are absent; and the number of donors we have, our expenses versus income each month, whether we raise our budget each year, and our level of operating reserve).

Jay Jacobs: We do. Our program is aligned against two long term, two intermediate term and three short term outcomes that we expect every student to achieve as a result of his or her participation in Summer Search. Each outcome is tied to a specific set of metrics we use to track progress against that outcome. We use the “Efforts to Outcomes” database to track each student and to assess each mentors efficacy in supporting student progress. 

CN: What do you think are the critical qualities of a high performing charity?

John Butler: Many qualities are critical to high-performing organizations. They include:

• Ability to be nimble enough to react quickly to unexpected opportunities and/or threats while having the wherewithal to engage in strategic planning and goal-setting activities that are responsibility measured and evaluated;
• Transparency to inside and outside stakeholders;
• Effective management of staff and resources; and
• Effective measurement tools to measure and evaluate success.

Jeremy Kohomban:

• A compelling mission with demonstrated “real life” outcomes.
• Credible leadership known by the “donor community”
• A motivated and highly engaged Board of Trustees.

Nicholas Torres:

• Clear outcome indicators
• Annual report on outcome indicators
• Good and responsible good governance – CEO benchmarks and evaluation
• Accurate fiscal projections and monitoring

Susan Paresky: The critical qualities of a high-performing charity are excellent leadership, governance, and process; strict adherence to standards; meaningful goals and objectives, as well as ways to measure outcomes; hiring the right people; and attention to the cost of funds raised so that donors’ gifts are being used efficiently and effectively.

Curtis Hail:

• Compelling vision of the future shared throughout the ranks
• Clear mission understood by all stakeholders that most effectively moves toward achieving the vision
• Measurable goals that are God-size in scope, but plausible in human terms
• Business model that achieves the Good-To-Great fly wheel intersection of passion, competency and revenue production
• Stable Level 5 Leadership Team over long-haul
• Tells their story well

Robert Egger: They pursue and idea—and use their day-to-day efforts to elevate that idea via action. They work to develop a solid foundation—both ethical and financial to grow on. They take constant, steady, but measured steps to elevate their impact and services. They work daily to engage the community in their efforts.

Deanne Pearn:

• Clarity of Vision and Mission
• Strategic business plan
• Sufficient and talented management team
• Sufficient infrastructure and systems to do work
• Engaged Board
• Systems for regularly tracking, measuring, and reporting performance across all functions. Ability to correct course if needed.

Angel Aloma: A low administrative cost ratio in comparison to program expenditures, programs and projects that have palpable impact on the population served, and a donor base that is loyal and happy with the organization.

Food For The Poor’s fundraising and other administrative costs comprise less than 4% of our expenses; more than 96% of all donations go directly to programs that help the poor.

Beth Stevens: A clearly defined mission that staff members internalize and do not stray from. The ability to show a definitive track record of success (however the charity defines and measures success). A culture that is honest, principled, positive, open, entrepreneurial, realistic, and resilient. A CEO who excels at managing team members and raising funds for the organization.

Jay Jacobs: I would highlight four areas:

• Strong leadership at the staff and board level.
• Well articulated vision, mission and desired outcomes that map clearly to the organization’s program model, strategy and operating budget. The “macro” level ought to obviously align with the “micro.”  It should be clear how their day to day work leads to the long term vision.
• A demonstrated commitment to quality evidenced by the ability to produce meaningful program data and a robust performance management system. Can people involved in the organization tell you the outcomes they seek to achieve? Can they tell you what “quality” is? Can they speak about the organization’s strengths and weaknesses in achieving its outcomes?
• A demonstrated commitment to operational quality as reflected in things like transparent and clear financial reports, good communication (marketing materials, events etc) and the smart use of IT. This will obviously vary by size, age, etc of the organization but this is an issue of their commitment to operating well, not the resources available to them- the point is, how well do they do with what they have?

CN:  In what ways do you wish donors to American charities were more mature or responsible? For example, would you like to see more donors make a long term commitment to support a charity, do you wish more donors gave undesignated funds or do you wish more donors asked for data about outcomes?

John Butler: While AWF is truly appreciative of all donor support, like many nonprofits non-restricted funds are our life blood and allow us to invest in vital areas that donors may not find interesting (finance and operations, for example) and that allow us to respond quickly to evolving situations and problems. In addition, yearly budgeting for nonprofits is a constant challenge. Longer-term gifts, spread over time, help make the budgeting process more efficient and allow for more effective planning because the program staff knows the amount of funding available.

Jeremy Kohomban:

• Visit programs, ask tough questions and if the outcomes they see/experience are real, get engaged/involved!
• Give consistently to the cause and understand that reasonable administrative costs are part of good program management and crucial outcome achievement.
• When giving through family foundations, make long-term commitments with an eye toward program maturity and measurable success rather than the next “hot” idea.

Nicholas Torres: Donors should invest in data and outcomes, but make the funds undesignated. Donors should receive a quarterly stakeholders report on the agency outcomes.

Susan Paresky: It is in our best interest to have our donors become as knowledgeable as possible about our institution. We do this by establishing a partnership and opening the lines of communication so that our donors are in control of and feel good about the philanthropic decisions they make.

For example, all institutions need undesignated funds to meet pressing and critical needs. It’s our responsibility to educate donors about that need, but also to be respectful of their wishes and what they choose to support.

Curtis Hail:

• Give to the Biblical Great Commission, not fad causes often secular driven
• Give deep and long for lasting results in the field. Giving in spurts does not lend itself to long-term impact.

Robert Egger: I wish more would ignore the illogical line that divides the .com and .org cultures. I’d love everything you mentioned, but the root of this evolution is having BOTH models viewed as powerful tools to grow the American economy. Until we can see an investment in philanthropy through the same lens as an investment in a blue chip company, then we won’t witness the breakthrough we all seek---nor will we see the American economy thrive in the new world economy.

Deanne Pearn: I wish more donors understood the challenges of non-profit fundraising. As Jeffrey Bradach of Bridgespan noted, non-profit management is akin to setting out to do a cross-country road trip and stopping for gas one mile at a time. It is inefficient and time consuming and ultimately detracts from what we are all hoping to do- make a dent against some critical social or public problem. Non-profits would be well served by donors who looked to performance outcomes to gauge the success of their investment, and allowed non-profits to spend money as they needed to (without restrictions) and made long-term commitments to high performing organizations.

Angel Aloma: An educated donor is always one that will remain more loyal to the mission. Therefore, a transparent organization should not fear a donor’s request for outcomes.

If we manage an organization that is donor centric, long term commitment on the donor’s part will be a natural result. As an international charity it would be beneficial for us if the population were more traveled and more aware of the level of destitution in developing nations.

Beth Stevens: We have no wishes in this regard. The variety of donors and their interests is so great, we do not feel comfortable generalizing. We operate on the assumption that it is our job to convince each potential donor that we have a program worthy of support regardless of other interests or priorities he or she may have. 

Jay Jacobs: First, I wish donors were more thoughtful in their financial analysis of organizations. In our world, we are often hit with the “cost per student,” question- how much does it cost us to serve one student for one year? What matters more is the cost per outcome and with that, the return on investment. It is meaningless to compare the cost structure of organizations that seek different outcomes and it is meaningless to look at cost alone. I’d love to see donors think more like investors and work their way backwards from the impact they want to achieve rather than forward from cost. Ironically, that will actually force greater accountability from nonprofits as we’ll have to clearly tie our spending to our efficacy in achieving outcomes.

Second, on that same note, there is still so much resistance to helping organizations build operational capacity. If I look at Summer Search, for us to serve our students well takes mentors and bookkeepers. That’s just life if you want to have a sustainable organization that produces consistent results for all participants. Yet so many donors want to only “buy” the mentor causing organizations to under-invest in back office and other non-program functions. This often causes operational issues and distractions for the organization’s leadership and limits growth potential. It is penny wise, pound foolish.