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Oct 28, 2011   |   Blog Post

What Do You Gain From Seeing Non-profits Admit Failures?


More on the issues of transparency and disclosure … an interesting piece from today’s Puget Sound Business Journal …

Nonprofits debate merits of admitting failure
Puget Sound Business Journal
Friday, October 28, 2011

Tacoma-based nonprofit A Child’s Right is doing something a bit controversial these days: admitting failure. The group, which provides clean water systems in the developing world, is staking its financial future on transparency. The group wants to attract donors who have realistic expectations and won’t pull funds when things go wrong. “We actually think it’s more fruitful in the long term,” said Peter Drury, development director.

A Child’s Right posted pictures on its website of orange water from a failed system it had installed in Nepal that couldn’t handle the region’s high volume of iron. Resolving the problem took more money and time than anticipated, but A Child’s Right shares its project financials — even when the numbers are over budget, said Eric Stowe, the nonprofit’s founder and director. When to admit failure is an intense debate going on in the nonprofit sector, where some leaders worry that good intentions for transparency will backfire.

A notable example of that is The Global Fund, an international partnership based in Geneva that works to treat diseases in the developing world. In January, news exploded of mismanaged funds. Media treated the news like an investigative report, but the story had come out because the Global Fund had freely released information about the unaccounted funds — some $34 million out of a total $13 billion disbursement — in a detailed report. The group had been working to correct the situation when the news broke. “To be perfectly honest, we were taken aback by what seemed to be a negative media onslaught,” said Andrew Hurst, spokesman for the Global Fund. “Our feeling was that some of the reporting to an extent misrepresented (the Global Fund), or at least was misinterpreted by some of the people who received that information, and it gave rise to a lot of negative commentary.”

The largely negative reaction raised concerns for many nonprofits that were considering admitting their own failures. “You can’t help but be a little gun shy,” said Lisa Cohen, founding director of Seattle-based Washington Global Health Alliance. “Hopefully, we can learn from this. It’s a very complicated, and kind of a frightening climate when you have people so willing to jump in and vilify and take things out of context.”

Still, many — including Cohen — argue transparency is a valuable tool for communicating with donors about the realities of how their money is spent and the challenges of creating real change in the developing world. “We need to learn from what didn’t work,” she said. “You learn more from that sometimes than from what did work.” That’s the approach that leaders of A Child’s Right took when they recently launched a program called ProvingIt, which closely tracks the exact number of children they provide clean drinking water to every day. The group continues to monitor and upgrade the water systems for 10 years, with the idea of helping local governments prepare to take over in the 11th year.

But it’s not all good news; the nonprofit freely shares stories about its failures, including the orange water problem in Nepal. “Hearing them talk about failure makes us more excited to support them because their ability to admit when things aren’t working — and the attention they are paying to that — inspires a lot of confidence,” said Katie Briggs, managing director of the Seattle-based Laird Norton Family Foundation, one of the group’s major funders. “Honestly, I wish more would do that.”

Many nonprofits, according to A Child’s Right’s Drury, feel pressure to present a perfect image at all times, or risk losing donor funding. “You’ll hear people in business say all the time that the only way you learn is to fail … but in the nonprofit sector people get so scared to talk about failure,” he said. “The overwhelming number of organizations have a disincentive to tell the full truth, the unvarnished truth, at all times because of what it will mean for donations.”

Marc Bellemare, a development economist who teaches public policy and economics at Duke University, views admitting failure as a public relations move to enhance credibility and reputation, similar to touting corporate social responsibility efforts in the for-profit world. “When I started hearing about admitting failure, it is very nice, but there’s nothing that prevents you from learning from your own failures without having to admit them,” Bellemare said. “For me, it really is a marketing tool more than anything.” However, he said the move toward disclosure could eventually have a positive effect overall, when it reaches a tipping point and every nonprofit has to be more forthcoming about failure. “We may soon be moving toward a new equilibrium where everyone has to admit failure, and say ‘where did we go wrong?’” Bellemare said. “Everyone has to look contrite in a way — or else they start looking suspicious.”

Still, disclosing the failure of a project or cost overruns is less scary for nonprofits than disclosing financial mismanagement or fraud, Bellemare said. “That’s a whole different ball game,” he said. “I think it’s much more likely to scare away donors than failure of projects.” Many groups argue that admitting failure is more than just image insurance; it’s part of helping donors better understand the complexities of doing work in global development.

“I think in our case, we’ve actually found it’s competitively advantageous in fundraising, and also in terms of supporting the causes that we love most, to have disclosure,” said John Beale, strategic development director for Seattle-based VillageReach, a group that works to improve access to healthcare in remote parts of the developing world. The group makes available its tax documents and annual independent audit information on its website. VillageReach also has updated its scheduled reports to notify donors when projects are running behind and hitting technical problems.

“It’s not merely an exercise in admitting failure or explaining success,” Beale said. “It’s giving context for what we do. I think more organizations would be more comfortable with being transparent and admitting failure if they had already made an effort to explain to donors what they are trying to do in the first place.”

Valerie Bauman covers nonprofits, biotech and research for the Puget Sound Business Journal.

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