US Nonprofits: Not So Transparent

Source: Washington Post, 16 May 2003

There has been a big push over the past year to get corporations to be more honest with shareholders, so far with only modest success. While companies now disclose more details about off-balance-sheet transactions and derivatives risk, annual reports still reveal a near-universal reluctance on the part of executives to come clean about their major screw-ups and miscalculations.
You might have expected better from the public-spirited folks in the nonprofit sector. But any such notion was dispelled by this week’s series in The Post on the Nature Conservancy by Joe Stephens and David B. Ottaway.

Let me state upfront that I don’t think the Nature Conservancy’s bona fides as an environmental organization are called into question by having corporate executives on its board of directors and working closely with the oil and timber companies. It is one of the least attractive aspects of the environmental movement that, while championing diversity in the biosphere, it tolerates little diversity in the political sphere.

To me, however, the most disturbing revelation of The Post’s series was that even a large and well-respected nonprofit — a pioneer in adopting corporate best practices — turns out to be no more open or transparent than most money-grubbing corporations.

A review of the Conservancy’s annual reports and other public materials, for example, finds no mention of the costly failure involved in trying to bring eco-business to the Eastern Shore of Virginia, or of the legal trouble it got into drilling for gas under somebody else’s land. There is no annual listing of business dealings with trustees, directors and members of their families, or much detail on executive compensation, both of which are required of all public corporations.

Truth be told, the Nature Conservancy is probably better than most nonprofits in terms of transparency and disclosure, which is precisely the point. This remains a sector in which the first instinct is to reveal only what is flattering while keeping bad news from donors, the public and even from boards of directors, which tend to be every bit as compliant and clueless as those at Enron and WorldCom.

"There remains a serious lack of oversight in the nonprofit sector," says Pablo Eisenberg, longtime executive director of the Center for Community Change who now teaches nonprofit management at Georgetown University.

To be sure, there has been some movement toward accountability in the nonprofit sector, which now accounts for 7 percent of the U.S. economy — probably twice that much in the Washington region.

There are, for example, Web sites like that now provide annual reports and financial statements of 75,000 cooperating nonprofits. And the Better Business Bureau evaluates charities on the basis of what percentage of their contributions they spend on fundraising and overhead.

Locally, a group of leading foundations has started a Web site ( that highlights nonprofit organizations it considers the most effective and efficient. And out in San Francisco, an outfit called Philanthropic Partners is preparing to issue annual ratings for nonprofits based on a dozen or so quantitative metrics, much the way Morningstar evaluates mutual funds or Moody’s rates corporate bonds.

All of these are efforts to bring market discipline to the somewhat haphazard and inefficient allocation of charitable capital. But getting to a higher level of transparency in the nonprofit sector, warns Buzz Schmidt, founder of GuideStar, also awaits a major attitude change on the part of donors, the public — and, yes, the press.

After all, it is hardly realistic to expect nonprofits to come clean about their screw-ups if the reward for their candor is likely to be public vilification and an immediate cutoff of funding. Establishing a culture of candor, says Schmidt, will require a culture of tolerance for reasonable risk-taking and the occasional, well-intentioned failure.