Category Archives: Organizational Models

Thinking Velocity Vs. Efficiency

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Global Giving is a deservedly widely-hailed institution, highlighted by such luminaries as the Clinton Foundation and Bill Easterly. Its model is relatively simple. Philanthropists-to-be browse the website, and look for a (prescreened) cause they want to donate to; the causes are posted with amounts needed, where and what the money will be spent on, and a reassurance that you’ll get regular updates. And a couple guarantees – notably, that your money will be “on-the-ground” in 60 days. Now, we might expect that getting spent quickly is a good idea; after all there is a fear that the money will be retained by those getting it for personal gain, or that it’ll be whittled away on bureaucratic red tape. And some pressure must surely be put on organizations to avoid waste, undue delay or excessive red tape.

However the constant pressure to get money out the door, let alone  an absolute requirement, can lead to dangerous incentives as Good Intentions are Not Enough illustrates:

I worked for a large international charity after a major disaster. As part of the senior management team I attended monthly meetings to discuss our “burn rate”. The burn rate referred to how quickly we spent… our money. There was no similar meeting on the quality or impact of our aid….[We wanted to] ensure that all money was spent by the five year anniversary of the disaster. My organization knew that if there were any unspent donations at that time they would get a lot of negative publicity. If the public heard that they hadn’t spent all of the money donated for that disaster they would be less willing to donate to the next disaster. Spending money quickly was paramount. Unfortunately this caused a lot of problems in the field for our partner organization…Our staff was caught in the middle between the very real needs of the partner organization and the demands of HQ. A large part of the funding decisions were based on the ability of the project to burn through money rather than on the quality of the program or what type of assistance was needed the most.

I suggest you read the whole thing: the real problem of the constant push to get money out the door irrespective of quality, need, efficacy etcetera is demonstrated in the details. The incentive to burn money is also amply demonstrated by a conversation one of Good Intention’s are Not Enough’s commentators had with their organization: “[I said] ‘But if that’s the best way of doing it, why don’t we do that everywhere?’ ‘Because it takes too long and it doesn’t cost enough.’” We usually think of corporations as doing things quick, dirty and cheap. Well it seems that charities often are incentivized to do things quick, dirty and expensive.

So while I think Easterly is right to hail GlobalGiving for its concentration on solving small problems in doses, rather than on the next panacea, I think we should recognize that velocity should not take precedence over efficacy.

Again, I think that GlobalGiving does do a wonderful job and that its model is something to consider very strongly over the usual scaled international aid. We should just think very seriously about what we push aid to do.


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The Right to Information (Act) Will Set You Free

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We’ve talked about Indian innovations from the bottom up, and now there’s an important structural change to improve Indian governance:

Chanchala Devi always wanted a house. Not a mud-and-stick hut, like her current home….but a proper brick-and-mortar house. When she heard that a government program for the poor would give her about $700 to build that house, she applied immediately. As an impoverished day laborer from a downtrodden caste, she was an ideal candidate for the grant. Yet she waited four years….Two months ago she took advantage of India’s powerful and wildly popular Right to Information law. With help from a local activist, she filed a request at a local government office to find out who had gotten the grants while she waited, and why. Within days a local bureaucrat had good news: Her grant had been approved, and she would soon get her check.

Of course, this isn’t a panacea. In fact, this bill doesn’t really advocate for any particular policy to help anyone except by revealing where money has flown. The idea is that through a relatively simple process, by constantly shedding light and enforcing results, India can work towards a place where trust helps create prosperity, and prosperity trust. And of course, incentives: “The law is backed by stiff fines for bureaucrats who withhold information, a penalty that appears to be ensuring speedy compliance.”

Ultimately, to complete the real power of this law more accountability has to be enforced on those who are shown to have committed corruption. But in the meantime, this bill shows how some simple structural changes can have far reaching positive effects.

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Does private/social melding work?

B Corporation logo, trademark B-Labs

“The social responsibility of business,” Milton Friedman once wrote “is to increase profits.”

That was in 1970. Since then a massive movement has grown up around the rather vague notion of CSR, or Corporate Social Responsibility. Promoting the triple bottom line – people, the planet and profit – they seek to strongly consider the side effects of all the different operations and then act accordingly – from helping fight global warming to expanding employee health benefits.

Soon some corporations may attempt a “third way”: neither explicitly non-profit nor solely concentrated on bucking up the (single) bottom line. To manage this somewhat dicey balance a new term has arisen: a B Corporation, or Benefit Corporation, which includes in its bylaws specific legal responsibilities not only to its shareholders but also to “stakeholders” – those that the organization affects, if only tangentially. Their status as a B Corporation is reconsidered annually by a recognized third party; if they fail to live up to their by-law obligations they lost the status.

Maryland has become the first state to pass this category into law; in possible contradiction  to Friedman’s own words, Andrew Kassoy, one of the promoters of B Corporations, said: “”Milton Friedman would have loved this, for the first time, we have a market-based solution supporting investors and entrepreneurs who want to make money and make a difference.”  Now in part he is right – this is partially a market solution because by using the basics of tort law they’ve made sure part of the voluntary contract used in starting the corporation includes this social commitment.

Two caveats, however:

1. B Lab specifically promotes the legislation because it can make sure that even under new ownership this commitment remains.

2.  Perhaps mor importantly, there have started to be some tax breaks packaged with incorporating as a a B Corp. These tax breaks are admittedly extremely minor, but that’s no guarantee that they will remain so and it certainly gives the lie to the claim of a Friedman-like market solution.

But to most people who aren’t hardline libertarians, the most important question is, does this ideal of responsibility actually yield a better world than traditional corporations? I for one think that this is hardly the “first time [we have] a market-based solution supporting [those] who want to make money and make a difference.” Would we really be better off if Google shifted resources from computing to fight oil spills? If Phizer dropped its main devotion to creating pharmaceuticals and threw itself into investing in the local community? Both of these companies have done extraordinary good while doing extraordinarily well; they both do have CSR components but that cannot, and I believe should not, be their essential concentration – or even a particularly large one.

While CSR has been found to have positive, neutral and negative effects on profits, there’s no doubt that many companies think that it helps their bottom line to help out society – or, at least, to appear to. Ultimately corporations that are not B Corporations have legal duties only to their shareholders (and to abide by the law), and so as their actual incentives don’t really align with doing a lot of conscious good, it should not surprise us that CSR often doesn’t do much at all. Whether somewhat vague promises built into their by-laws can help B Corporations avoid this incentive trap is an open question.

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Charity Navigator 2.0

Charity Navigator, a site we’ve mentioned before as part of a repertoire of resources to seek out good charities always was somewhat limited in what it could offer because it concentrated on an important, but ultimately secondary element, the finances. But they’re now promising to tackle the larger and more difficult tasks of assessing “accountability/transparency and effectiveness/results.” They’re calling this new iteration Charity Navigator 2.0  The excellent Give Well currently works on the second goal, results and efficiency, but on a relatively small scale. And it’s still an open question what criteria Charity Navigator can use to judge effectiveness. Something utilitarian, like a dollars spent per life saved? And how can you have a system which judges Arts and Culture on the same scale as International Aid?

These are important questions for Charity Navigator to deal with, but this is heartening news all the same. Charity Navigator 2.0 will likely be a powerful tool by finally putting the focus on the outputs rather than the inputs.

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Two Steps Forward, One Step Back in Transparency

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The quest for transparency in charities has been an uphill battle. Unlike public companies, the forms that 501(c)3 charities submit are not necessarily all that thorough. They list their incoming and outgoing money, some compensation figures and they verify that they didn’t spend money on illegal activities like influencing political outcomes, but beyond that they don’t need to show the distribution or efficacy of funds.

And in point of fact getting even large and important organizations to show where they spend their money can be painfully difficult. Till Bruckner, a former coordinator at Transparency International Georgia chronicles his long and trying attempt to publicize the actual distribution of funds to Georgia following the 2008 war with Russia. At first TI Georgia requested directly from the aid organizations, but out of 12 organizations only Oxfam GB complied – the others citing “legal and contractual implication involving donors”.  So he went to the donors: much of the money was coming directly from USAID; he filed a Freedom of Information Act request for data on USAID spending on NGOs in Georgia. However:

Six months later USAID informed me that it needed the consent of the NGOs to release this data as it might contain “confidential commercial information,” thereby closing the opacity loop: first NGOs had blamed donors for not being able to release budgets, and now the biggest donor was passing the buck back to NGOs.

There was more wrangling over the months to come, but in the end “one year after my original request for information, the budgets of US-funded NGOs in Georgia remain as elusive as ever.” With little incentive to release the data, red tape can easily leave those who distributed the money free from accountability and able to release information at their own pace and to their own liking.
But this isn’t the only side to the story. Because with increased academic scrutiny and the cheapness of information sites like have brought a new vitality and ease to transparency. In fact, has such minute tracking of government money some seemingly embarrassing entries like this show up:
“Recovery Assistance – Hunger Task Force – Sundries – Limousine for J Sachs”  for which they paid $221.55. And the J Sacks in question? Jeffery Sacks, developmental economist and author of The End of Poverty. To address a commentator’s point, and others’ I’ve read, this is not really such a big deal – limousine services needn’t actually be driving abnormally oblong cars but simply a car service. And there are other mitigating possibilities.
But the important thing here is not the trivial amount of money directed to a limousine service by Irish Aid but rather the massive amount of data that you can discover and expose. With a few clicks, I can find the entire history of USAID’s donations to Georgia from 1994 – 2008 – 23 pages of carefully listed projects sortable by purpose, title, amount and so on. For every setback the fight for greater transparency faces, there are some victories to celebrate.
HT for AidData: Ryan Powers
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Want to host a fundraiser for an official charity of the LA Dodgers?

It’s always great to see when an organization is able to engage its fanbase in an innovative way. ThinkCure, a non-profit that raises communal funds cancer research, calls on its community to help find a cure. They actively encourage supporters to host and manage their own fundraisers, in collaboration with the organization itself.

They also provide a great event planning guide.

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Non-Profit Restaurants: Exciting Innovation or CEO Ego-trip?

Slices of French Bread
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Via Charity Navigator, a USA Today story:

Imagine walking into a Panera Bread and picking out anything you wanted to eat or drink — then, at the end of the line, instead of handing your money to a cashier, you faced a donation box…. A sign at the entrance says: “Take what you need, leave your fair share.” Customers who can’t pay are asked to donate their time. The cafe opened Sunday and will operate seven days a week from 7 a.m. to 4 p.m.

Basically, the you pay what you want and the proceeds go to charity. Charity Navigator and some quoted experts in the story seem excited by this notion. But this seems like a major breakdown of specialization. Why should a restaurant try to be a soup kitchen and nonprofit? Does it really have the relevant expertise to organize people donating time and money, not to mention actually making back the money it takes to rent, staff and supply the store? An increase of “20% on opening day [of being a non-profit] vs. the previous Sunday [when it was still a for-profit]” is not such a shockingly high jump in revenue. Of course, I do wish them well.  Just take this with a grain of salt…

And what would be the preferred scheme? Less exciting, but more realistic: specialize! Sell tons of French food in a normal restaurant and then, if you want, give the profits to charity. If preferred, have a selection of charities to donate to. Frankly, I suspect that former Panera Bread’s former CEO is eager to swoop down on from on-business-success-high and sprinkle the shower of brilliant innovation onto the nonprofit world. But somehow a soup-kitchen/pay-what-you-want/charity/French chain cafe combo seems less than realistic.

Also: Freakonomics collects a gaggle of pay-what-you-want schemes.

Another also: USA Today has a blog about weird non-profit schemes

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