Why self-regulate? Standards needed, but should address plurality

This is a two part question:

Part 1. It is argued that nonprofit organizations must self-regulate. Why?

Part 2. In order to examine “how” nonprofit organizations might self-regulate, please compare, contrast, and critique the following standards for nonprofits created by three prominent self-regulation schemes. If appropriate, you might want to consider the appropriateness (e.g., adequacy, inadequacy, practicality, etc.) of such standards for nonprofit subfields in your discussion.
a. Charities Review Council of Minnesota, “Accountability Standards”: http://www.smartgivers.org/Accountability_Standards.html

b. Better Business Bureau, “Charity Standards”: http://us.bbb.org/WWWRoot/SitePage.aspx?site=113&id=1bce9b1f-74e9-4c94-96e8-1ee2b519b0c4

c. Maryland Association of Nonprofits, “Standards for Excellence”: http://www.marylandnonprofits.org/html/standards/04_02.asp



Part 1. It is argued that nonprofit organizations must self-regulate. Why?

As stated by the Maryland Association of NonProfit Associations:

“Nonprofits are private corporations that operate for public purposes with public support. As such, they should provide the public with information about their mission, program activities, and finances. A nonprofit should also be accessible and responsive to members of the public who express interest in the affairs of the organization.”

In essence, nonprofits are by ideal private entities which exist to the benefit of the public. In the case of those charities identified as 501c3 orgs, the benefit accrued to the organization vis a vis donor income tax deduction indicates a certain possession of this subgroup of nonprofits by the public. As such accountability to the public and to stakeholders involved in all nonprofits is paramount to the organization.

During a recent history of corporate scandal leading to the Sarbanes-Oxley Act (http://www.soxlaw.com/) and a general distrust by the public of government in general and its ability to take care of individual needs in particular, it is paramount that ethics be held as the cornerstone of nonprofits and that transparency be central to that ethos.

So, in a simple way, non-profits must self-regulate because of accountability to the public.

Why cannot some other sector regulate them? For each sector to properly succeed in its own right and not begin to reflect elements of another sector, regulation by another sector must be minimized. For there to be the best appropriate mix of caring for individual and public interests, each sector must do what it does best. For profit must pursue the dollar, government must serve the media voter, and the nonprofit sector must be grounded in serving public goods that address the plurality of communities. If government were to overly regulate nonprofits, then the philanthropic sector would become a mere puppet of government. Everything must be balanced wherein each sector has influence and calls attention to weaknesses and accountabilities in the other sectors, but does not dictate to another sector how it must act at all times. So, for reasons of sector independence and proper sectoral mission fulfillment, non-profits must self-regulate.

Finally though I think that all kinds of organizations must be allowed to change and grow, and perhaps the sectors that make up groups of these organizations must change and grow as well. To be instrumental with the best possible accuracy any sort of organization must have the power to transform itself. Perhaps this is true of the nonprofit sector as a whole. Sarbanes-Oxley recently has begun to teach nonprofits by extension that government, in holding the will of the media voter, will demand transparency – that scandal will be prosecuted. Nonprofits are not subject to Sarbanes-Oxley directly, and yet nonprofit management classes discuss the ramifications extensively. Associations look to its implications to make sure that member organizations are in-line with its provisions. The mistake by a few in one sector has caused each sector to self-evaluate. Why then must nonprofits self-regulate? So that change and transformation itself not only lends to a better serving sector, but gives a space in which that magical change can occur.

Part 2. In order to examine “how” nonprofit organizations might self-regulate, please compare, contrast, and critique the following standards for nonprofits created by three prominent self-regulation schemes. If appropriate, you might want to consider the appropriateness (e.g., adequacy, inadequacy, practicality, etc.) of such standards for nonprofit subfields in your discussion.

All three resources provided for “how” nonprofits self-regulate are good starting places. Best practice methods are put forward in theoretical and practical terms that give benchmarks by which philanthropic organizations may be motivated to adhere. However, they also are inadequate in some specific dimensions.

All three call for no board compensation other than reimbursement of expenses. I am still wrapping my head around this one. As a member of a board, it is a standard I have agreed to. However, I question its practicality in changing times and across a very diverse set of organizations. As I took this position, it was difficult for me to explain to relatives, etc that no – this is a volunteer position, and I , in fact, am honor bound to either contribute and/or seek donations for the organization. In a practical sense, they took the equation of time=money which we were all raised with and looked at me as though I was crazy.

Perhaps they are correct.! ;-)

But, those involved in our sector understand that there is other currency that is not green – that is more ephemeral and based in a passion for others, a desire to give to something bigger than ourselves.

OK, fine. But, I don’t believe this equation is as simplistic either. I look to city councils where council members are unpaid and I look to city councils where they are compensated. I see better performance wherein they are paid, because serving the city full-time in that capacity and getting compensated meets needs that they would have to have another job for. I wonder if, depending on the organization, there are instances that for that organization alone – compensation of directors is a more motivating approach.

There is also the rule that board and staff must be separate. Again, my argument falls to one of allowing organizational diversity within the sector. There will be situations wherein this will not work.

Most pointedly for me are standards in regard to reserve limits. Any standard which is arbitrary and does not allow the organization to match what is best for them in terms of strategic forecasting of the terrain in the next 3, 5 or 10 years inclusive of economic conditions, growth, or building/land acquisition is not realistic. For me, an approximate liquidity target that takes into account how convertible holdings are in addition to how many of those holdings you have and what you are going to do with them is more honest, transparent, and the best standard (Zeitlow 2007). Basic to this approach is the idea of how fast and efficiently can a manager move the funds from one form to another to cover basic organizational expenses.

I am impressed with the Maryland Association of Nonprofit Organizations fundraising ratio of 3:1 (3 times as much revenue as fundraising costs) and the approach that allows explanation for why an organization doesn’t meet this standard - that it is a goal to be eventually reached. However, I again do not think that it works in all cases and that for an organization to be considered “good” it has to meet this standard.

All three sets of standards also contain ethics on solicitation and truth in marketing. This is admirable in my opinion, but laughable in my deep dark heart. I have seen too much fighting on both sides of an issue to believe that all propaganda is “truthful marketing” Will funds be used as they say they are, yes…they should be. Is it really in an effort to defeat our enemies because they are the demons we make them out to be – NO. Marketing and propaganda is how organizations move masses of people – these methods are not brutally honest by nature.

All this being said, I do believe in standards. Almost everything in life needs protocols in order to allow for proper management, communication and easy exchange of elements. And, those protocols must be adhered to even as people call for exceptions (as a general rule) because everyone is going to try and “buck the system”. But, by having most people follow a general set of rules, one can then look specifically to the exceptions and spend the time where needed to address the real root causes and approaches to those idiosyncrasies.

What I appreciate most in these standards (and found notably in the BBB standards) are where the standards call for a policy to be internally created in the organization (ex: Conflict of interests policies) wherein definition is left up to the will of that organization alone. Also useful are templates to base these policies upon for practical management application wherein a board flushes out what problems and strategic vulnerabilities it may see in a certain templated approach.