Opening Up Non-Profits

Good governance and accountability are, aside from making a profit, the dominant issues in most corporations today.  Governments are under similar pressures to be accountable and open.  The same pressures, however, are not evident in the other major sector of society -- the non-profit sector.

As the recent Red Cross Bali Appeal has illustrated, the sector is light on disclosure and prone to assuming that its "do-good" reputation means that people will just trust them.  And if the Red Cross has problems, you can bet they are much worse in other organisations.  Red Cross is, by all measures, one of the most open and best governed non-profits.

The non-profit sector has a number of fundamental characteristics that make good governance more difficult, but all the more important.

First, non-profits lack shareholders and the aggressive external stakeholders demanding transparency and efficiency.  They do not have stockbrokers and analysts combing through their books with an expert eye.  They have no watch-dog or regulatory body with oversight responsibility and most have no critics.  In short, no-one is looking -- and that can breed laxity, poor standards and abuse.

Second, non-profits often have archaic systems of governance.  Many organisations have evolved from small grass root groups to become large, complex businesses funded in the main with government contracts.  For example, Red Cross used to be a community based humanitarian organisation funded largely by its members.  It is now a huge business providing 70 different services across the country, with a paid staff of over 900, income of nearly $300 million, with 80 per cent of its funding coming from government contracts for the provision of blood bank, foreign aid and other services.  While the Red Cross has done much to improve its governance systems, particularly for its blood bank operations, it retains a cumbersome state based system which appears to have contributed to its slow response on the Bali Appeal.  Other organisations have made few changes and are still run like bowling clubs.

Third, the public is gullible and has false expectations when it comes to "non profit", and non-profits tend to prey on this for fundraising purposes.  For example, the public believes that all non-profits are volunteer organisations run on the smell of an oily rag.  In truth, most large non-profits, like the Red Cross, are run by well paid professionals with excellent facilities and maintain high administration costs because of their labour intensive operations.  When people, as happened in the Bali Appeal, learn the truth about the organisation's professional nature, they tend to overact, thereby putting at risk monies for good causes.

The solution lies not with a new oversight body.  The last thing we want is to wrap non-profits up with red tape.  Rather, the solution lies in inducing them to voluntarily disclose, on the internet, basic information such as fundrasing and administration costs, voting membership numbers, executive salaries and benefits, and details of the use of funds raised from the public.  This has been required of companies for decades and is common overseas.

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