Comments on: Why We Need Philanthropic Equity

By: Sean Stannard-Stockton

Sean Stannard-Stockton — Tue, 18 Aug 2009 20:20:27 +0000

Steve, I’d guess you understand this topic better than I do. I know George does.

Jenn,
Thanks for the support. I hope you’re right!

By: Steve Goldberg

Steve Goldberg — Tue, 18 Aug 2009 20:12:07 +0000

Sean, I take your earlier point about involving FASB as a way of recognizing the whole idea of equity capital. As George pointed out above, this is still a relatively new concept that isn’t yet widely understood. FASB recognition — and the public comment process that would precede and inform it — could help get the word out on what it is and why it’s important, establish familiar concepts and terminology, and provide a common point of reference.

By: Jenn Kantz

Jenn Kantz — Tue, 18 Aug 2009 20:05:10 +0000

Thanks for the great post Sean. I forwarded it on to my CEO and our President of the board.

I hope we continue to move towards the shared standards and I have high hopes we will. Remember that as recently as the 80s & 90s everyone was focused on program replication as a means of expanding social impact. Then, towards the beginning of this decade, we shifted focus to building organizational capacity. We, the nonprofit and business world, thought this might be the best way to deliver effective programs. However it became evident that too few funders and donors pay attention to building solid organization foundations.

Philanthropic Equity is the way forward.

By: George Overholser

George Overholser — Tue, 18 Aug 2009 01:26:04 +0000

Great piece, Sean!

Thanks for continuing to champion the concepts of Philanthropic Equity, a term that hardly existed just a few years ago. Thanks, too, for highlighting the work we are doing at NFF.

Our efforts complement the work of many others who are also pioneering new techniques for capitalizing the growth of high performing nonprofits. All told, I have tallied up more than $300 million worth of grants made in recent years that can legitimately be called “equity-like”.

As Steve points out, we don’t know yet exactly which of the various techniques will function best, and thus, exactly which should be encoded into a shared standard of accounting.

But with all of these exciting experiments underway, I feel confident that now is the time to begin the process of coalescing around what we, as a field, are learning.

One thing feels for sure. The sooner we can establish (and then evolve) shared standards, the sooner a broad and healthy market for philanthropic equity will come into being.

By: Sean Stannard-Stockton

Sean Stannard-Stockton — Mon, 17 Aug 2009 19:25:08 +0000

Ginny thanks for highlighting a compelling example of the need for philanthropic equity accounting. I just tweeted your comment and added it to my Daily Digest post.

Steve, I’m with you, but think we need official recognition to get things moving. I don’t see this as new “regulation”, it is just an accounting change. Maybe FASB can trial it with a small set of organizations?

By: Ingvild Bjornvold

Ingvild Bjornvold — Mon, 17 Aug 2009 18:57:03 +0000

Thanks, Sean, for an excellent continuation of the conversation about supporting high performing organizations – and by extension – programs that make a difference. Accounting is not my field, but I certainly am familiar with how nonprofits tend to be starved for philanthropic equity. Thanks for highlighting this critical aspect of the conversation about performance.

By: Steve Goldberg

Steve Goldberg — Mon, 17 Aug 2009 18:35:12 +0000

Well said, Sean. I think the biggest challenge relates to your closing point concerning the adoption of this kind of accounting. The methods of equity accounting are well established and not difficult for trained professionals to apply. Rather than a regulatory approach, though, I think we need economic incentives to untangle the chicken-and-egg problem that nonprofits won’t adopt equity accounting until they know it will attract equity funding, and funders won’t provide equity-like grants until they know that nonprofits can manage the money, i.e., they practice equity-accounting. Just as funders need to provide capacity-building grants if they want high-performing nonprofits to become high-impact organizations, they must also offer to fund more sophisticated financial management practices if they want to scale what works.

By: Ginny Deerin

Ginny Deerin — Mon, 17 Aug 2009 18:34:40 +0000

Our philanthropic entity ain’t got no home and we can’t win for losin’ in the world of accounting.

Wings for kids, a 12-year old non-profit organization, is going through a rigorous and costly effort to prepare to scale up our program that has shown great promise in closing the achievement gap.

Here’s our annual dilemma. Right now, we report expenses in two buckets: the “program expense” bucket and the dreaded “management and fundraising” bucket. Because there is no such thing as an “equity” bucket (according to Financial Accounting Standards) – each year we have to decide:

1. Do we put our “equity” expenses in our program expense bucket – which makes our service delivery per person cost appear too high. ?
2. Or do we put these capacity building expenses under “management and fundraising” which makes our dreaded “management and fundraising expense percentage” too high?

Either way, we lose with people saying, “Wow, Wings has such an amazing impact on kids – I just wish you didn’t spend so much money.” Then the follow up comment is either: “your cost per participant is just too high” or “your management and fundraising expense is way out of line!”

Our Board chair says, “We have to hope that those in a position of leadership in philanthropy will lead and make the changes that are so obviously needed!” (She’ll be happy to read your column.) “And, in the meantime, we have to find the courage to do what we need to do and find sophisticated philanthropic investors to invest.

By: Sean Stannard-Stockton

Sean Stannard-Stockton — Mon, 17 Aug 2009 17:23:18 +0000

Thanks Melinda. You got what I was shooting at. Glad it wasn’t too jargon-y! Making nonprofit accounting interesting is a bit of a challenge!

By: Melinda Lewis

Melinda Lewis — Mon, 17 Aug 2009 16:42:02 +0000

I’m a social worker, not an accountant, so some of this was new thinking for me, but it’s a critical point, and raises really the flip side of your earlier discussion of high impact v. high performing nonprofits–there are those NPOs that are high impact but barefly hanging on–achieving their outcomes because of tremendous staff effort or a convergence of fortuitous factors, or whatever…but they quickly burn out because of inadequate capitalization to really take their models ‘to scale’. In the long run, that won’t get us to our goal any more than investing in high performing organizations that, while efficient, fail to have significant impact on their targeted problems. I’m glad that you continue to raise these issues, especially given the rise of the Social Innovation Fund and the need to seize that opportunity.