Transparency is becoming a governance byword in the nonprofit sector. Stakeholders have come to expect — even demand — to be kept apprised of everything about an organization and its inner workings. When organizations are not transparent or there is a suspicion of withholding the truth, losing influential board members or donors is just the beginning of the fallout.
What exactly is transparency? Simply put, transparency is what interested parties are shown about an organization and its structure, plans, funding, activities, challenges and outcomes. What is disclosed means different things to different parties, but it is essential to present a clear message to all.
Transparency may sound like a buzzword, but it should be a key organizational strategy. Transparency in the nonprofit sector is of growing interest to government regulators and legislators, charity watchdogs, service recipients and other key constituents, funders, rating agencies and the media, among others.
Establishing and maintaining strong lines of communication with stakeholders are of critical importance for today’s not-for-profit organizations. Constituents are developing an increasingly voracious appetite for timely, relevant and specific information, and they are voting with their feet and dollars for organizations that meet those needs. While certain financial and nonfinancial reports are mandatory, not-for-profit leaders are taking deliberate measures to go above and beyond by proactively disclosing fiscal and operational performance to demonstrate transparency and a commitment to the relationships between the organization and its stakeholders.
Most nonprofits’ constituencies are quite diverse, with each segment possessing its own unique needs. Whether addressing internal stakeholders (i.e., boards, employees, consumers, members, donors, administration, etc.) or external constituencies (i.e., funders, credit rating agencies, partners, municipalities, the media, volunteers, the broader community, etc.), organizations are deploying enhanced communication techniques to build awareness, increase engagement, earn trust and demonstrate goodwill. After all, a nonprofit’s reputation and stakeholders’ perceptions are largely shaped by the information brought to the attention of these constituencies.
Engagement, reputation, trust and funding are on the line
In an era of increased scrutiny, nonprofit leaders are under ever-greater pressure to differentiate from competitors, enhance the value and level of service delivered, and assure prospective funders and donors that the organization’s future endeavors and aspirations are attainable. Meaningful engagement with constituents can significantly affect the perceived value of services rendered, the level of affinity generated, programmatic participation and willingness to pay. Strong communications and relationships with those just starting their affiliation with your organization can foster a feeling of belonging, and when sustained over the long term, can generate mutually beneficial value for all involved.
From a fundraising perspective, an organization’s ability to engage donors, share relevant information and establish a tradition of giving has a tremendous impact on financial position. There are staggering differences in results between organizations that engage their board and most loyal constituents with effective messaging, and those that lack a formal constituent relations and development strategy. Overall revenue diversity and financing of future growth can frequently hang in the balance.
Since the definition of organizational success may vary from one constituency to the next, maintaining open lines of communication is key to generating dialogue and fostering mutual understanding. For instance, many organizations are in the midst of formulating or implementing transformation initiatives. It is critical to be proactive in providing information to those who will be affected by change, and to answer questions in a way that will build trust, demonstrate transparency and alleviate anxiety. Clearly articulating anticipated changes, expected benefits and implementation timelines enable leaders to set expectations for a broad range of stakeholders.
Organizations find communications, transparency work
Organizations recognize that stakeholders expect more communications than in the past:
Taking an investor relations approach. Inspired by the standard to which publicly traded corporations are held regarding financial reporting and investor relations, Fedcap — a New York-based nonprofit that strives to help individuals overcome barriers to economic independence — implemented a semiannual stakeholder relations webcast/phone call to update constituents on its operational and financial performance. Fedcap President and CEO Christine McMahon, along with CFO Karen Wegmann, proactively seek to enhance the level and nature of financial and nonfinancial reporting to demonstrate transparency, increase engagement, respond to inquiries and exemplify stewardship. One year into this new approach, a broad array of constituents have voiced their satisfaction with the practice, while the organization and its leadership have benefited from the robust and meaningful conversations that have been fostered.
Garnering the support of donors, the local community and the faithful. In its 2015 publication, Catholic Impact, the Archdiocese of Washington [D.C.] sought to engage and inform a variety of stakeholders about the good work of the organization and its related entities. With an emphasis on the financial, spiritual and operational accomplishments of Catholic education, social services and health care, the publication is intended to build awareness of, and quantify, the organization’s ministerial contributions. In addition to the 620,000 Catholics who reside within Washington, D.C., and the five surrounding Maryland counties that comprise the archdiocese, Catholic Impact targets the broader community — including taxpayers and government entities — to highlight the Church’s commitment to various social causes. The bilingual, multimedia-delivered content showcases the impact of donor support, quantifies the archdiocese’s impact on the broader community, and describes to taxpayers and municipalities the benefits that are provided without reliance on taxes or subsidies. For example, the archdiocese reports that one of its health care entities provided more than $200 million of community benefit over a five-year period. This clear quantification and articulation of organizational contributions has enabled the archdiocese to control its message and influence broader constituent perceptions.
Clarifying financial position. Not-for-profit reserves planning has become a hot topic in recent years. Organizations and their finance leaders have increasingly found themselves in the position of having to demonstrate financial sustainability or justify the size of their balance sheet. On one hand, maintaining insufficient liquidity can be deemed financially irresponsible; on the other, a balance sheet that is too strong might be perceived as excessive, since hoarding assets prevents an organization from deploying resources for mission-related causes. Some nonprofits have made concerted efforts to cogently articulate the basis for their organization’s financial position to provide assurance to government, constituents, debt rating agencies and creditors; demonstrate a need for ongoing financial support from donors and grantors; and indicate the organization’s preparedness for the pursuit of strategic projects.
Implementing a fact-based, data-driven approach to determining an appropriate reserves target, while articulating a sensible policy for doing so, can help nonprofits reassure their constituents and strike an appropriate balance between the pursuit of mission objectives and long-term financial sustainability.
What does good look like?
Not-for-profit organizations are improving transparency and sharing information in many ways. A few best practices stand out:
Timeliness: Provide data consistently and quickly after it is available or collected.
Appropriate level of information: Communicate the right level of quantity and complexity, based on each constituency’s degree of interest. When burdened with too much unexplained data, the message can get lost. When information is meager, stakeholders have more questions and less trust.
Full disclosure: To build trust, share the good and the bad. Be forthcoming about challenges, crises and other less-than-optimal situations. Accompany these reports with a description of remedial actions or plans.
Utilizing reporting requirements: Leverage your Form 990 disclosures to explain — and promote — your activities and outcomes, not only to the IRS, but also to all other stakeholders. See in this report “Telling your story transparently: Putting disclosures to work” by Kimberly Schrant and Dan Romano.
Open conversations: Make the conversation a two-way street; develop channels of communication so constituents can speak to you. Listen and respond.
Metrics that matter: Align metrics to a broader vision and strategy, and demonstrate how the organization is executing its key mission and values. However, understand that data alone don’t explain anything. Provide analysis and accompany it with interpretation, and explain what the organization intends to do in response.
Partnering with your constituents is a foundation for your organization’s success. As in any partnership, trust is earned through honesty and transparency. Earn your partners’ trust by maintaining meaningful, ongoing communication to tell the story of what has been done, what is being done and what comes next.
Visit the report overview for more articles: The State of the Not-for-Profit Sector in 2016