Stanford Social Innovation Review

Nonprofit Accounting Rules Not the Solution to For-Profit Accountability

In The New York Times Feb. 17 op-ed, “Soup Kitchen Accounting,” Dietrick and Granof suggest that the banks now being bailed out with our tax dollars need to be held to strict public account and therefore should take a page from the nonprofit accounting manual. God forbid. We do not approve of torture.

If the question is how to make banks more functional, or how to ensure that they are now doing the right thing for us with our collective investments, you have to look elsewhere. To be sure, banks requiring public money to bolster balance sheets or fund unprofitable operations should be required to account for themselves, fulfill explicit objectives and—well—deliver.  But nonprofit accounting is a fast track in the wrong direction.

No matter how badly the money center banks have been managed (and these folks have evidently broken all previous records on a number of counts), they don’t deserve the dysfunctional, punitive accounting rules that hamstring the nonprofit sector now.  Our rules are management-unfriendly in numerous and inordinate ways. They violate the matching principle, conflate regular operating revenue with capital infusions (to general puzzlement of boards, funders and managers) and faithfully reinforce a sector-wide logic error:  the substitution of inputs (how, in dysfunctional and paralytic detail, did you spend the money?) for a metric of true transparency—results (what happened as a result of spending the money?)  This has let to a debilitating sector-wide obsession with meaningless benchmarks such as overhead rate and fundraising expense—to the detriment of understanding what works, robust capitalization and constantly improving results. 

And thus to the banks. We need to look at the banking system for what it is, necessary public infrastructure. And the goal here is to save them from failure.  Beyond the blood sport of punishing them, our enlightened self interest would encourage us to seek solutions that allow them to recover.  And that would include returning them to profitability.  And an uncomfortable “aha” for us is that for money center banks, conventional lending of the type we need to be able to lubricate the economy is largely unprofitable.  Moreover, most banks now accommodate two or three shadow decision-makers in the person of regulators from the OCC, FDIC, Federal Reserve and others. Several layers of bureaucratic and regulatory oversight has already slowed loan production, workouts and operations, reducing already narrowed margins to zero and demoralizing the last bank staff standing.  We can tell you…nonprofit accounting would be the final straw.  Nonprofit accounting takes us far, far away from the ownership information that we, the outraged – and reluctant – equity holders should expect.

The authors’ point about accountability is reasonable, but their conclusion is not.  As the adage goes, “accountant, heal thyself!”  The conclusion should be that if the trusted professional infrastructure of the economy—bank regulators, bond rating agencies, consulting firms, securities dealers and yes, accountants—had been doing their jobs with the perfectly adequate tools that for-profit accounting and disclosure rules provide, we might not be in this mess.  And then the nonprofit sector, (hampered as it is with an obfuscatory and expensive set of accounting rules) would not be cleaning up the human damage with food banks, homeless shelters and emergency medical clinics.

Clara Miller is President and Chief Executive Officer of Nonprofit Finance Fund (NFF), the only national financial intermediary exclusively committed to social sector finance. Miller speaks and writes extensively about nonprofit capitalization and finance, and has been published recently in the Financial Times, the Chronicle of Philanthropy, Community Wealth Vanguard, Stanford Social Innovation Review, the Nonprofit Quarterly, and Worth Magazine.

Posted by Katie Harrington

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Spinternet

In the mid-1990s, people began realizing the Internet would transform the world—but the prevailing wisdom at the time was that it would be mostly for the better. Last Friday, panels of thought leaders at the Skoll World Forum in Oxford agreed it’s time to take another look at that assumption.

Charles Leadbeater, a social entrepreneur and author of “We-think: the power of mass creativity,” said the Internet has, indeed, given more people access to knowledge [and will continue to do so, through such sites as Ushahidi, kiva.org, the new Wikimap Aid, and M-Pesa, a mobile phone-based money exchange service in Kenya]. It’s also clear, Leadbeater said, that the Web has begun to topple the top-down, Industrial Age way of managing people and projects into more level, lateral types of conversations, relationships and collaborative teams. “I also think the Web has huge potential to allow knowledge to be deployed in different ways which are not determined by profit,” he told Skoll conferees.

Panelists also agreed that the Web—particularly cellphone video-sharing—is empowering many people to hold their leaders accountable for bullying: Witness.org Executive Director Yvette Alberdingk Thijm shared citizen videos that her nonprofit either helped to produce or took viral on the Web in an effort to stop human rights abuses. This mobile phone video, about a California man shot and killed by police, led to the arrests of two officers after it went viral shortly after the incident. [Note the irony of the “danger” sign on the closing door of the subway train that appears at the end of the clip.] Another video, shot on a Flip video camera by Witness.org-trained Yemeni activists, showcases the six-year-old daughter of Yemeni journalist Abdulkarim al-Khaiwani, and her recollections of the day authorities broke into the family’s home, beat her father unconscious, and imprisoned him for his pro-democracy views. Witness.org uploaded the video and took it viral; a screen shot of that video, emblazoned with The Hub’s logo, was then published by an Arab newspaper. A public uproar ensued and led to the release of al-Khaiwani last September. “Once a story is out in the public sphere, it cannot be removed from public consciousness,” Alberdingk Thijm said. “The Web can help shift the dynamics of power.”

But citizens, beware. It’s getting harder to use the Web for social change. Challenges to the Web’s potential for democracy and freedom are growing quickly now, panelists agreed. “The enemy is getting just as smart in using these same tools to silence people yet again,” said Evgeny Morozov, a Belarussian journalist who is writing a book about censorship and the use of the Internet by authoritarian states.

Morozov cited a half-dozen examples of government and corporate “Net-cleansing”—including cases where companies are hiring “reputation cleansers” to bury Web references to poor corporate track records on Web search engines, while nationalist groups in Africa and the Middle East are using Google maps to mashup census data, so as to better pinpoint minority neighborhoods for targeting. Crowdsourcing also is being used by the governments of Thailand and China to drum up lists of Web sites and blogs critical of the current regimes; the Thai government, Morozov says, asks citizens to nominate Web sites to be blocked for content that offends the king; in China, a “50-cent Army” of some 200,000 or more citizens is paid to post pro-government comments on blogs critical of Beijing authorities. Morozov also says denial-of-service attacks are emerging as powerful tools for silencing political dissent in Georgia, Burma, Russia—and the United States. [During last year’s debate in California over the controversial Proposition 8, Morozov says, denial-of-service attacks were used by proponents of the anti-gay proposal to stem the ability of gay and lesbian nonprofits and political action groups to fight the measure.]

“We tend to assume the Net is going to be helping [civil rights advocates] and not the dictators,” Morozov says, “but repressive groups and regimes love the Internet, too, and are figuring out how to use it to control others.” When asked by moderator Andrew Zolli which side is winning—citizen civil rights activists or the dictators—Morozov said: “Both ends of the spectrum are expanding, but it’s very hard for me to deliver an argument that the Net benefits one political side more than the other.”

For more on the 50-cent Army and Internet censorship, see “Peep Show”, an August cross-post on SSIR from Cause Global about online censorship around the world. 

Marcia Stepanek is Founding Editor-in-Chief and President, News and Information, for Contribute Media, a New York-based magazine, Web site, and conference series about the new people and ideas of giving. She is the publisher of Cause Global, an acclaimed new blog about the use of digital media for social change. She also serves as moderator and producer of New Conversations for Change, Contribute’s forum series highlighting social entrepreneurs and new trends in philanthropy.

Posted by Kelsey Walker

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Technology’s Positive Impact on Human Rights

In a world where we post our trivia on twitter, incriminating photos on Facebook, and embarrassing videos on YouTube, can truly horrible stories of human rights violations still grab our attention? Our horror? And the shame necessary to drive change?

And when the perpetrator of the crime smiles and waves at the camera during the act, does their “You know that I know that you are watching while I get my 15 seconds of fame” attitude make a video game of the whole episode?

Trevor Paglen, author, artist, journalist and experimental geographer, opened the Conference on Human Rights, Technology, and New Media at Berkeley on May 4th with these powerful questions.

Trevor’s controversial and thought-provoking pessimism about the continued success of the mobilization of shame to change policy and practice was offset by the good news throughout the rest of the conference–examples abounded of technology’s positive impact on human rights.

Some of these examples are:

• Trevor’s now famous photo of a CIA black site provided evidence of a secret government detention architecture. Using public records, mapping visualization, GPS systems, interviews, and dogged determination, Trevor tracked down the location of this site and took the controversial photograph.
• Yvette Alberdingk Thijm of WITNESS described how their program empowering locals to document human rights violations in film has actually reduced voluntary recruitment of child soldiers in the Eastern Democratic Republic of Congo and has contributed to the prioritization of this issue at the international level. With today’s video and internet technologies, anyone can be a witness and documenter.
• David Sasaki of Global Voices described the many internet tools he uses to build an online blogging community of over 150 voices from the developing world covering issues that mainstream media often ignore. Internet applications such as Google groups, Google reader, Google docs, delicious, wikis, basecamp, Doppler, freshbooks and mind42.com makes it easy to build and maintain their virtual community.
• Judith Dueck of Huridocs detailed the database and search capabilities they provide to allow massive amounts of victim, perpetrator, and event data to be mined. Standardizing the structure and vocabulary of human rights turns the tons of boxes of data into actionable information for stopping the violations.
• Peggy Weil of the USC School of Cinematic Arts gave a fascinating example of raising awareness of torture through an immersive experience in Second Life. Working with Nonny de la Pena, her team created GoneGitmo, a Second Life experience that takes a viewer’s avatar through the experience of Guantanamo. Depending on how closely you identify with your avatar, the experience of being bound, head-covered, and interrogated can be quite terrifying.

Rather than feeling technology and media weary after seeing gadgets worthy of James Bond (the BUG4GOOD mobile device was especially cool), rather than seeing games and social networks as corrupting influences on our youth, these technologies and media made me feel optimistic.

For collection of information, we have modern technologies such as satellite images, GPS, GIS, and ubiquitous phones, cameras and SMS. For simplifying analysis, we have data visualization, DNA analysis, collaborative online conversations, and data mining, for example. And for promoting awareness we have fun technologies such as games, films, and multi-media campaigns.

So we can use social networks not to expose personal embarrassments but to expose crises. We can create communities for sharing stories of trauma not gossip. And we can create learning and immersive experiences for deeply feeling and walking in someone else’s shoes rather than avoiding reality. And perhaps then we can drive the change that is needed.

This sounds like a Web 2.0 to embrace.

Gina Klein Jorasch Gina Klein Jorasch is currently Senior Advisor to the Center for Social Innovation at the Stanford Graduate School of Business. Gina was a founder or early-stage executive at five for-profit tech start-ups, all of which had successful IPOs or acquisitions, and a founding board member for two nonprofit startups.

Posted by Kelsey Walker

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“Flag on the Play” for a Multi-Million Dollar Nonprofit

Two February 7th Events – One nonprofit rose over $450 million dollars and the other worked toward a goal of $15,000.  Which one is the true nonprofit organization?

On February 7th, the Courage Center held its 4th annual benefit for Camp Courage, which offers safe, accessible, natural environments for children with disabilities.  Founded in Minnesota in 1928, the Courage Center is a nonprofit organization that set a goal of $15,000 dollars for its Dance with Courage event.

On the same day, the National Football League (NFL), a registered nonprofit organization, successfully raised an estimated $463 million dollars through its annual Super Bowl event, according to Sports Research Institute.  The event was seen by over 100 million people and an estimated 112,000 people were in attendance.  Some other interesting facts include:

• The highest donation category for the Camp Courage event was the “Mikhail Baryshnikov” level at $100.  The Super Bowl sold 30-second commercial advertising space for approximately $2.6 million dollars a spot. 
• The NFL’s CEO Roger Goodell is reportedly paid over $10 million dollars, which is approximately three times more than the top nonprofit CEO salary cited by Money Magazine, James Mongan of Partners HealthCare Systems in Massachusetts.  Mr. Goodell makes nearly 44 times more than the CEO at the Courage Center according to 990 records.
• The NFL has 13 subsidiaries, seven of them tax exempt.  The smallest of the seven tax exempt subsidiaries are those that are dedicated toward philanthropic causes, including NFL Charities and the NFL Youth Fund.  Rick Cohen, in his Nonprofit Quarterly blog The Cohen Report (8/12/08), cited that in the 2005 990, the NFL gave away to charitable causes slightly under $10 million dollars.  This is approximately one tenth of 1% of its annual revenue.  Foundations are required by law to distribute annually at least 5 percent of their net assets.
• The NFL’s 2009 annual revenue is $7.6 Billion dollars, according to Forbes Magazine.  That would make it over $2 billion more in revenue than the Mayo Foundation, the largest U.S. charity cited by Forbes.  The league’s least valued team, the Oakland Raiders at $797 million dollars, is greater than many large for-profit companies.

Something is wrong with this scenario.  I am not sure if the NFL truly complies with the nonprofit corporation definition of operating for educational, charitable, social, religious, civic or humanitarian purposes.

While the proceeds of the Camp Courage event will be dedicated toward advancing the lives of children and adults experiencing barriers to health and independence, the proceeds of the Super Bowl will go to the NFL’s mission of “promoting interests of its 32 member clubs”.  The mission statement originally filed by the NFL is unknown.  According to Josh Peter of the New Orleans Times-Picayune, the “NFL said it has lost its copy of the application it filed with the IRS in 1942, and the IRS also said it was unable to find a copy of the application.” 

I guess this is equal to the dog eating your homework and so I am sure advancing the interests of the Washington Redskins is equal to the missions of organizations like the Courage Center or smaller “folding-table organizations” that earn their non-profit status each and every day.
 
I am an avid football fan.  I played throughout high school and college.  I enjoy a Vikings or Jets game on Sundays.  That said, there is something very wrong about the NFL being a tax exempt organization and my greatest challenge is how the nonprofit sector can be manipulated in this way.  What is even more worrisome is how much more other tax exempt statuses are being manipulated in this fashion. 

John Brothers the Principal of Cuidiu Consulting, a Senior Fellow in executive leadership with the Support Center for Nonprofit Management, and an adjunct professor at New York University’s Wagner School for Public Service.

Posted by Samantha Penabad

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Postcards from the Elections

Now that the Demopublicans have routed the Republicrats in elections nationwide, how will low-income communities be affected?

I can answer that question with another: What is the sound of one Diebold AccuVote TS Touch-Screen System™ failing to record a vote?

Exit pollsters did, however, report significant voter frustration with corruption in politics, and Nancy Pelosi, soon-to-be Speaker of the House, promised a shakedown in Congress.  “The Democrats intend to lead the most honest, most open, and most ethical Congress in history,” she said in an apparently unguarded moment.  It’s true that Republicans might have taken the rap, but Democrats, as we know, have not been models of self-denial. In January of this year, for example, the Washington Post reported that

Senate Minority Leader Harry M. Reid (D-Nev.) [now the majority leader—eds.], like House Speaker J. Dennis Hastert (R-Ill.), signed a letter in 2002 to Interior Secretary Gail A. Norton on behalf of an Abramoff client around the time he received a large campaign contribution from Abramoff’s tribal clients. Edward P. Ayoob, a former Reid aide, was a member of Abramoff’s lobbying team …

Abramoff picked up part of the tab for two Democrats, Reps. James E. Clyburn (S.C.) and Bennie Thompson (Miss.), on a trip to the Northern Mariana Islands in the mid-1990s, officially sponsored by the nonprofit American Security Council. Clyburn, now chairman of the Democratic Caucus, was recently named to the House Democrats’ “clean team,” tasked with leading the ethics-reform push.

Business as usual for both sides of the aisle.  Remember that heartwarming show of zeal earlier this year for meaningful lobbying reform?  That effort was so toothless, so cynical, that some advocates suggested dubbing it the “Let’s Add Effrontery to Bribery Act of 2006.”  So nonprofit advocates beware.  If history is any guide, you’ll likely continue to be seriously outspent by well-moneyed interests, all cries for an “ethical Congress” to the contrary.

While the reformers do their work (or not), the nonprofit and foundation communities watch closely for new regulatory initiatives from the 110th Congress.  But do the elections hold a deeper meaning for the sector?

I was struck by the fact that many voters repudiated the Iraq War not because it was an immoral invasion based on trumped up charges, but because it was poorly executed and “weakened the United States.”  Perhaps we were too busy fumbling for the keys of our SUVs to mention to the exit-pollsters that we were appalled at having become one of a family of nations that commits torture.  Ballot measures in 11 states banned same-sex marriage, giving legal cover to our bigotry.  And in no election—none—did the issue of poverty play a significant role.

This is apparently what defines the “middle” in these nefarious times.

Albert Ruesga blogs on philanthropy and nonprofits at White Courtesy Telephone.  Currently a foundation executive, he has worked in the nonprofit sector for close to 20 years.  He taught ethics and logic at Gettysburg College before entering the world of philanthropy.  An accomplished writer, his articles have appeared in Social Theory and Practice, The Journal of Popular Culture, and other publications.  He was for many years a contributing writer to The Boston Book Review.

Posted by Albert Ruesga

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