Chairman’s Corner: October 2010

Transparency: Compliance-Driven or Culturally Ingrained?

by Mario Morino, Co-founder of VPP

Last fall, I argued here and here that several unstoppable trends were going to bring greater transparency to the social sector. I described how new online tools would soon make it possible for outsiders to peer far more deeply into grantmaking and grant-seeking organizations. But I failed to bring out the value and relevance of transparency for those who govern and run these organizations.

I’m revisiting this topic and filling in the gap in my argument as a logical follow-on to my recent columns—here, here, here, and here—on social outcomes. From my vantage point, an organization’s performance (its ability to achieve the outcomes at the core of its mission) and its transparency are highly intertwined and co-dependent. It is hard to envision how one can exist without the other.

Recently, I read a wonderful blog post on The Economist’s website that hit the nail on the head. The post focuses on the way transparency is being pushed in the corporate sector, but the authors’ insights apply equally well in a nonprofit context:

Transparency, it seems, is simply the latest attempt to make an old concept—truthfulness—trendy. Our mothers told us that lying is a bad thing; what we now call transparency is merely the embodiment of that advice. But just sharing ever more information will not save society from business malpractice and corporate psychopaths…. Customers and governments are not interested in more information, more numbers, more reports or more sophisticated press briefings. What civil society is seeking is trustworthy, relevant and understandable information about how a company runs its business and the features of the products and services it offers to the market.

What struck me was how the post presents transparency at its most basic and fundamental core. Transparency is about our value set and how we act on it—not about checking a set of boxes or posting a set of documents on a website. It is about the honesty, openness, and integrity we live by in governing and running our organizations and doing our jobs. I staunchly maintain that it is far more important for an organization to be open and transparent in the way it functions and manages its internal actions—how it plans, executes, makes decisions, engages, and assesses—than for the organization to do most of the things that typically fall under the rubric of “transparency.” True transparency is culturally ingrained in the DNA of the organization. It encourages constructive questioning and honest probing focused on mission and guided by core beliefs. And it demonstrates high integrity in big and little decisions and actions.

Smoke vs. Sun

I have had some familiarity over the years with several nonprofit institutions that have made great strides in transparency—at least on the surface. They’ve done a thorough job of reporting on results and complying with the letter of the law on public disclosures. Yet, in spite of these trappings of transparency, I’ve found myself at times questioning the substance or “realness” of their transparency.

My hesitation is a product of observing the organizations at work. For example, I’ve seen some of these organizations’ boards operating in pro-forma, rubber-stamp fashion, instead of engaging in open, authentic, probing discussion and deliberation. I’ve seen the executive director and a few members of the board make all the tough decisions, with little or no input from or explanation to staff and other board members. And I’ve seen a lack of openness and candor in day-to-day operations—such as how executives communicate to other managers and the rest of the staff—which makes me question how heartfelt, how ingrained transparency is in the organization’s culture. My strong suspicion is that their “transparency” is driven by a desire to have their operating officer, lawyers, and marketing staff check off a set of boxes rather than a conviction to adhere to deeply held values and principles.

This tension is most visible when a very difficult issue confronts a board, executive leadership, a senior manager, or a staff member—for this is where principles are tested. Do they stay true to mission? Do they live by their core beliefs?

Let me share some real-life examples and ask you to recall times you may have seen similar versions of these “innocent” scenarios:

• A board member and the head of the organization clash hard over differences of opinion. The board member resigns in frustration. The rest of the board and management team hear only that the board member’s resignation is due to an increasing workload.
• A capital campaign is running materially behind target. When the board asks for a status update, management’s full answer to the board (and, by extension, to other key stakeholders) is, “It’s ok.”
• At every board meeting, the founder of the organization tells an evocative story about how the organization’s services are helping those it serves. When the board asks for results on the organization’s overall and collective impact, the founder can’t present any substantive information, beyond individual anecdotes, to illustrate that the organization is making a difference for those it serves.
• An organization reports on the number of youth its programs “touch” each year, giving the impression it serves 5,000 youth each year. The organization does not have the ability to say which youth actually engaged in which programs, for how long, and to what benefit. When the numbers are probed, it turns out that the organization serves fewer than 1,000 youth in a meaningful way.

To be sure, these are relatively mild examples of transparency gaps. To add urgency to my point, let me offer some extreme examples of how we are affected every day by a blatant lack of transparency even among organizations that may have a transparent veneer:

• A leader in a religious order consciously hides the transgressions of a minister or priest who has sexually molested a child.
• Prosecutors, judges and political party leaders in a community look the other way for years as corruption builds in its systems.
• An urban public school intentionally tries to inflate its test scores by arranging to transfer out its poorest-performing students.
• A pharmaceutical company delays a recall of a top-selling medication when in-house studies indicate safety concerns for patients.
• A car manufacturer fails to notify customers of a serious malfunction known internally to its engineers.

Transparency Means Truth-telling

One of the biggest challenges that I see in the social sector is the fear of confronting the unvarnished truth. How many times have boards of nonprofits allowed the executive director to “run the place” as if the ED is the sole proprietor and the board is along for the ride? How often would just one question that probed a little deeper, pressed a little harder, or called out opaque answers stimulate the organization to confront the real issues? As board members, executives, and staff, we too often want to keep everything positive and moving forward. We don’t want to hurt people’s feelings. We’re afraid to “rock the boat.” It’s much easier to ignore the problems lingering, maybe even stalking us, just under the surface of our organization’s operation. The truth is, it takes great courage to lead. Great leaders make the courageous decision in the most difficult and trying times—when their core values are tested. This is when you find out what is real and what has been pretense.

At Venture Philanthropy Partners, we made plenty of mistakes as we navigated our way into the world of philanthropy and the social sector. But we were not (and still aren’t) afraid to acknowledge our mistakes or recognize areas where we needed to improve. Carol Thompson Cole, VPP’s President and CEO, has commissioned two effectiveness assessments on VPP’s work. While the findings were affirming in aggregate, there was also tough feedback that was hard to hear because it told us where we didn’t do so well and needed to be better. The truth hurts, as the saying goes. But don’t we have to dig for the truth and ferret out the facts as to what is (and, equally important, is not) working so we know how to improve?

Having run organizations, I’m also quick to say that we can’t make every aspect of what we do the target of open-source scrutiny. Don’t get me wrong; I am biased toward sharing more rather than less information and have been accused throughout my professional and philanthropic careers of “over-sharing” with boards, clients, and team. But I believe that transparency has to be applied with discernment, reasonableness, and common sense. The phrase “First, do no harm” may be a good guideline to determine whether transparency about an issue will cause unwarranted, irreparable damage to others.

Transparency for Effectiveness, Not Punishment

As the transparency revolution accelerates in our sector, we must not allow skin-deep, compliance-driven transparency to become an acceptable substitute for values-driven, culturally ingrained efforts. One way to convince nonprofits to turn toward deeper transparency is to make transparency less scary. Today, transparency is not used enough as a tool for helping organizations to learn, improve, and adapt—to hold themselves accountable to themselves first! Far more frequently, it’s used to find fault and even punish.

Isn’t this the risk we face with the way transparency is being used in the field of education? To what extent are we using new information on educational outcomes to help students grow and develop, to inform and improve the teacher and school? Are we more apt to use the information to punish the student, teacher, and school?

Transparency is inevitable. New tools and often-well-deserved suspicion of our key societal institutions make that so. But transparency for transparency’s sake—or for punishment’s sake—is ineffective and even counterproductive. We must use our society’s focus on transparency to encourage a broader ethic and culture within the social sector that will build and reward true transparency.  And just as we want to encourage organizations to be mission-driven and to “manage to outcomes,” we want to encourage their being open and transparent for their own effectiveness—so they can do the very best they can for those they serve.

I’m looking for thoughtful transparency that is deeply grounded in an enlightened, long-term view of our obligations to our stakeholders, our neighbors, and our fellow global citizens. That’s the kind of transparency that restores trust in societal institutions.  Whether on Wall Street or Main Street, for-profit or nonprofit, that’s the kind of transparency that helps us all make wiser decisions. That’s the kind of transparency that inspires and enables greater impact across business, government, and the social sectors.