Let me make something clear. I am not advocating for the cause that FORGE is working on nor am I explicitly advocating for FORGE as an organization (or even Kjerstin as an individual). I am advocating for the cause of nonprofit transparency.
Why is transparency so important? Transparency builds trust and trust is the fundamental underpinning of markets and in fact most human endeavors. If I don’t trust you, interactions between us breaks down. Trust does not come from believing that someone is a great person, it comes from believing that what you observe is in fact a good description of reality. Transparency is a way to build trust. As a wealth advisor, I always make clear to my prospective clients how I am compensated and how various outcomes will benefit me (or not). This transparency allows prospective clients to trust my future statements because 1) they understand where I’m coming from and 2) I’ve just demonstrated that I will willingly point out ways in which I might be biased. Without trust, no client would ever hire me.
Public for-profit companies wrestle with this issue as well and sometimes make the right decisions and sometimes do not. When a for-profit investor is evaluating an investment idea, they diligently attempt to learn as much as possible about the company. However, at some point they must make a leap of faith and make the investment knowing that they do not have 100% of the facts (since, frankly, no one ever knows everything). This leap is made much more easily when the company in question goes to great length to transparently present their situation. When a company presents everything and does not appear to be “marketing” themselves, an investor can feel more confident that there is not knowable, relevant information of which they are unaware.
One of the functions of public stock exchanges is to create a standardized system of transparency. Not only can investor view the terms of historical transactions in the companies being traded, but the exchanges require a minimum level of transparency. Public companies must release quarterly and annual reports mandated by the SEC as well as release certain types of information within certain time frames.
I believe that if nonprofits can embrace transparency that they will build trust and more capital will flow to good. This is the promise of the social capital markets.
I’m off to meet with Kjerstin at FORGE. I think her experiment in radical transparency deserves all of our support.