How often have you heard: “The only thing we have is our reputation?” You’ve probably heard it from a parent, teacher, advisory, mentor, sales coach—you name it. As it is for individuals, so it is for organizations. The most prized possession an organization has—for profit or nonprofit, though my concern here is only with the latter—is its reputation. So, why oh why would we turn it over to others to manipulate?
It is why I rail so against most nonprofit’s conflict of interest policies, designed to protect the business interests of board members over the reputation of the nonprofit. While I am sure I have sounded off here before about the inadequacy of most nonprofits’ conflict of interest policy, the looks of confusion I get when I explain those inadequacies never cease to amaze me.
The vast majority of conflict of interest policies that nonprofits have adopted are what the law prescribes. Thus, legal protection is secured and nonprofit boards breath easy. But, how many board members, executive directors and others have ever thoughtfully read that legal protection? In short, so long as there is a process for dealing with a revealed potential conflict, so long as board members disclose those potential and real conflicts and so long as that process is followed, all is good in the eyes of the law—and most board members–and you can go ahead and give that board member’s, his spouse’s or her child’s firm a contract and the organization can relax. It followed its policy that was 100% in accordance with the law.
But did following that policy provide protection for the organization’s reputation? Will the eyebrow of a donor or reporter be raised by learning that a board member’s firm won the contract to paint the nonprofit’s building? Based on the regular calls I get from reporters around the country, the email and phone inquiries from board and staff members and donors, the answer is a clear, “You bet!” And even if the organization followed the policy to a T, the suspicions that a board member—her spouse, child, etc.– was favored are out there , and the reputation is no longer squeaky clean. For what?
Why would a thinking organization that has the power to protect its reputation by doing more than the legal requirement not do so? Because it believes that legal is necessary and sufficient, but doesn’t think whether legal is necessarily best practice. In a similar vein, why would a thinking nonprofit look to a charity watchdog group or any other kind of “good housekeeping seal of approval” group to assess its own goodness using benchmarks it determined to be valid for all and then assessed in a vacuum and, in so doing, allow that watchdog group to play with its reputation?
One of the many things that Charity Navigator does with all of the data it receives from the many organizations asking to be assessed (all hoping to win highest honors) is make “top 10” lists. While I am sure every organization that turns its data—and, therefore, its reputation, over to Charity Navigator hopes to end up on the “10 Charities Worth Watching” list, for example, a charity has no control on how Charity Navigator will rate them or list them. Thus, a nonprofit could end up, for example, on the list of the 10 highly rated nonprofits with low paid CEOs—presumed to be a good list—or on its mirror image list, 10 highly paid CEOs at low rated charities—a bad list.
Last summer, one of the highly esteemed nonprofits in Philadelphia, and beyond, the Please Touch Museum, made it onto Charity Navigator’s top 10 list of “charities drowning in administrative costs.” Based on its 2009 fiscal year data, it ranked 10th on this list, with administrative costs at 44.9%–an ugly number by everyone’s standards.
Yet, Charity Navigator admits it did not take into account the circumstances that may have lead to that unusually high figure. Circumstances such as 2009 was the year the Please Touch Museum moved from a smaller space to a huge space and nearly quadrupled its number of visitors, a projection that the Museum anticipated and, as a result, hired more staff of all kinds to deal with the uptick in traffic. Knowing that attendance would deflate in the second year, but still be much higher than in its former space, the Museum’s staff and attendant administrative cost had already dropped well before the summer list came out and long before the Museum knew it would be smeared for what most would see as good business practice. But where was Charity Navigator’s list of top 10 charities that improved their administrative costs in one year even when the original crime of which Charity Navigator accused them was an artifact of circumstances that the watchdog group admits it ignores?
Fast forward to last week. The Philadelphia Inquirer reported that the Please Touch Museum is struggling with its debt load, in small part due to a decline in visitors and membership. But the lead cause? It fell $21.5 million short in meeting its $88 million fundraising goal. Do you think being “outed”, absent any context, for a 50% administrative cost played any role? Do you think its reputation suffered thanks to the list on which Charity Navigator placed it?
Who is more to blame for this damaged reputation? Charity Navigator or the Museum for turning over control of its reputation to someone else?