Building Market Institutions for Philanthropy

(Sean Stannard-Stockton is on vacation. This is a guest post from Jacob
Harold, a program officer at the William and Flora Hewlett Foundation.)

This week I’ve been discussing the nonprofit marketplace. I’ve argued that this marketplace would benefit from better information about nonprofit performance. One post discussed the supply of information and another the demand for that information.

But markets require more than just buyers and sellers. There needs to be a place for exchange—either a real place (a local farmers’ market) or a virtual place (NASDAQ). More broadly, markets need institutions to help them run smoothly. In the private capital markets, there are entire armies of investment bankers, law firms, ratings agencies, accountants, and media outlets. These institutions help develop platforms, standards, and principles to ensure a fair, open, and (relatively) inexpensive system. Enron and the current credit crisis have proven that these systems can fail. But without them, the market would not work at all.

The nonprofit sector is, of course, different from the private capital markets: It’s often harder to describe nonprofit impact—it rarely can be measured in dollars (or yuan or pesos or shekels). Donors rightly have an emotional relationship with their philanthropy. It’s essentially impossible to compare across issue areas. There are no exchange rates across issue areas. (How many species saved from extinction does it take to equal 1000 brilliant operas?)

So the market institutions need to be different for philanthropy (flexible, patient, compassionate). The nonprofit sector already has several platforms that aggregate information and facilitate transactions: Guidestar, Foundation Center, IssueLab, Network for Good, JustGive and many others. These are all adding tremendous value; they could also benefit from more programmatic information and closer integration with private sector platforms like online banking. To facilitate interoperability across these different platforms it would be helpful to have a basic standard format to “tag” data about nonprofits. This standard could take many forms, but would need to allow for anyone to publish nonprofit information in a way that could be reorganized and remixed by others, perhaps using simple formats in XML such as RSS. (Here is a cautionary note on this.)

Finally, there are a set of behaviors or principles that would facilitate the growth of this information-rich marketplace. First, we all need to be willing to let go of our information. As institutions in the nonprofit sector, we have a general (though not absolute) responsibility to share what we know for the good of all. In the long run, I’d argue this means a shift from an “opt-in” to an “opt-out” mindset for nonprofit transparency. That is, if you don’t want to make something available, that’s fine—but the default is transparency. Second, we need to stay focused on social impact. It’s difficult to make forthright judgments about how well an individual organization is creating impact. But we have to try. Honest conversation helps us learn, raises expectations, and—let’s hope—facilitates good choices.


  1. Sean
    This topic is all the rage all of a sudden – see RPA’s linkages newsletter and the posts at Philanthropy2173 on “data, data” everywhere. Just want to invite you and your readers to join the online discussion group that formed to talk through these issues of data standards, openness, ownership et al in the social capital markets. Discussion group is here

  2. Perla Ni says:

    I couldn’t agree with you more on the sharing of information. I often wish that foundations could – with the nonprofits’ permission – share some of the vast amount of information they collect from nonprofits. They realize that their funding is limited and so should have a vested interest in seeing that the information they collect – at least some of it – is leveraged to help nonprofits attract other sources of support.

    Perla Ni

  3. You know Perla, I think of information sharing in philanthropy as only a small part of what I’ve written about. But recently I’ve been invited to speak at two conferences about my views on information sharing. I think information sharing might end up being one of the more important elements that define 21st century philanthropy. You’re on the cutting edge with Great Nonprofits!

  4. This and the associated posts are a great discussion. Here at the Charities Review Council we embarked on the use of a new on-line review called the Accountability Wizard. It allowed us to review more nonprofits and to help them meet our standards. We are no longer a standard watchdog in many ways. This has helped us to meet our mission to : “Mobilize informed donors and accountable nonprofits for the greater good.” It has helped by providing more information to donors.

    It is a voluntary system and requires the nonprofit to participate rather than just re-organizing 990 data. Since the launch in 12/05 we completed reviews of more than 350 organizations.

    While we still do not have the number of reviews that we would like, it keeps growing. The organizations that sign up for reviews are proof that transparency is front and center these days. There are occasionally organizations that cite a lack of time for participating but are happy to learn it is an easy process once started. The lack of administrative resources in nonprofits is definitely linked to transparency in some way. I also occasionally run across “selective transparency.” I consider this to be when the decision to be transparent is made to be when the nonprofit is on a better footing in some way. I think this sort of transparency is on the decline. The organizations volunteering for Accountability Wizard reviews value transparency in a very encouraging way.

    We have much more we would like to do, especially in the area of helping donors to learn more about outcomes and the activities of nonprofits to achieve them.

  5. Thanks Paul. I’ve highlighted Smart Givers in the past. While we’d all like to see every nonprofit analyzed, it is important to note that only a relatively small fraction of publicly traded stocks actually have research coverage. Almost all of the large companies do, but with smaller companies it is more limited. And yet we have a fully functioning marketplace.

    I think if we could produce high quality research on just the largest 500 nonprofits, we’d make a huge leap forward.