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December 10, 2007

Laws require nonprofits to be honest -- yes, but...

Apropos of my post on Maryland Nonprofits' Standards for Excellence, TJ Harris says:

It is generally true that the "Standards of Excellence" are a good way to minimize the chances that the organization is infested with the "incompetent, negligent, venal or larcenous."

But the Standards themselves are onerous and bureaucratic and somewhat redundent with basic non-profit state and federal laws and general corporate principles.

Meeting the Standards will guarantee that the organization has squandered hundreds of board and staff hours coming up with the pointless documentation and "written policies" required by the Standards of Excellence program.

Not to take away anything from Parks and People's achievement (and they are an outstanding organization), but smaller, but quite effective and non-larcenous non-profits will do fine work without meeting the Standards. Donors should look to a record of effectiveness rather than this particular overly-bureaucratic seal of approval.

Standards for Excellence DO overlap with "basic non-profit state and federal laws and general corporate principles." Problem is, state and federal laws purporting to keep nonprofits honest are lightly enforced, at best. Nonprofit enforcement by the IRS, which is in the best position to do so, has been a joke, although it's getting better. On a state level it takes blatant, ham-handed embezzlement to spur prosecution, and many people profiting from private inurement at nonprofits are too sophisticated to get caught doing that. (The accountant taking money from the till goes to jail while the executive director steering exorbitant contracts to his/her for-profit company gets a pat on the back.)

As for "general corporate principles," nonprofit boards tend to be disengaged, undertrained and ambivalent about enforcing ethical and financial standards. And by definition nonprofit organizations have no shareholders, so there is nobody left to watch the ball. So what's left? The nonprofit industry, if it values its reputation, must undertake to promulgate and enforce standards itself.

Posted by Jay Hancock at 10:45 AM | | Comments (2)
Categories: Nonprofits
        

Comments

Me again.

I don't disagree with anything you said about enforcement, policing, and even the low standards of non-profit Board members.

But the program as implemented by MANO is incredibly onerous. There's a 13-page application that requires lengthy answers to dozens of questions and attachments of more dozens of documents all of which takes literally hundreds of hours to complete. ( See http://www.marylandnonprofits.org/html/standards/documents/Application2006.pdf )

There's a $1500 application fee for non-MANO members, and there's a re-certification every three years. (Another $750 for non members.)

My main point is that in small organizations with small budgets funded by small donors, the Standards program is essentially out of reach, regardless of how squeaky clean or well-run the organization is.

As the Executive Director of the Maryland Association of Nonprofit Organizations, the sponsor of the Standards for Excellence program, I feel I must jump in. I'm afraid that the discussion to-date is really missing the richness and value of what the Standards for Excellence program offers.

In fact, certification and the award of the Standards for Excellence seal is only a very small part of the overall program. The program has three components, which work both individually and collectively to improve governance and management practices in the nonprofit sector.

First, is the Standard for Excellence code itself. The code has 8 guiding principles and 55 standards that provide a model for how well-managed, responsibily governed nonprofits operate. From the introduction of the program nearly 10 years ago, we have encouraged nonprofits to simply use the code as a benchmarking tool to assess how they are doing and then to start a discussion about improvements they could make.

Second, the program includes a wide array of educational materials, including 22 educational resource packets, and workshops and seminars to help organizations learn how to make improvements in their governance and management. We have tried to create a system to make it as easy as possible for organizations to implement positive organizational changes. From the outset we believed that we don't have a right to articulate standards if we can't help organizations to meet them. Both the code and educational program are readily accessible to even the smallest nonprofits.

Third, of course, is the certification program. While quite rigorous, the organizations that have gone through it attest that it has been a very valuable process to participate in and that they feel they are stronger and more sustainable as a result, as well as more successful in fundraising.

While clearly we would like to see more nonprofits become certified (and we believe that over time the market will demand that they do), we don't measure the success of the program by the number of certified organizations. Rather, we see success everytime an individual organization, large or small, makes use of the Standards to benchmark how they are doing and decides to make even one small improvement in their governance and management practices this year... and then another improvement next year, and so on.

Over time the program is serving to build stronger, more sustainable and more accountable organizations. And a growing body of research bears this out.

A longitudinal study we conducted based on analysis of IRS datafiles from 1995 to 2005 indicates that Maryland Nonprofits members are more likely to grow and less likely to go out of business than non-members. And Standards certified groups are more likely to grow and less likely to go out of business than our members at large.

Research elsewhere has demonstrated that "high performing nonprofits" engage in the governance and management practices that are described in the Standards for Excellence.

Over nearly ten years now, it has been an interesting challenge to try to create an implement a meaningful system of self-regulation in the nonprofit sector. Clearly, Maryland's nonprofit sector is leading the nation in this field.

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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