Author: Paul Penley
Where do you start when evaluating the health of a nonprofit organization? Incessant headlines about dishonest educational programs, irresponsible board governance, misleading cancer charities, and corrupt first responder foundations remind us a little assessment can go a long way. But most of us don’t have time for detailed due diligence. So where do we begin a cursory evaluation of nonprofit infrastructure and impact?
I’d recommend a standardized 6-step process for evaluating nonprofit performance. I’ll explain the first step this month and the remaining 5 steps in the months to come. The 6 steps involve 30 standards for nonprofit performance arranged in the following categories: (1) Leadership, (2) Financial Management, (3) Sustainability, (4) Leverage, (5) Strategy, and (6) Impact.
Good leadership as we define it is all about having a contributing board, a committed staff, and a savvy CEO. The board can be the donor’s best friend or worst nightmare. You don’t know until the organization experiences either a financial crisis or a leadership crisis. To make sure an organization’s board has some degree of health to its operation and composition, ask these 5 questions:
The answers to these 5 questions about board governance should be (1) yes, (2) yes, (3) yes, (4) none, and (5) no. Too many organizations don’t assign specific tasks for board members to oversee (committee responsibilities), let the CEO play the board chairman role (thereby negating any true accountability), and mix family members into the board makeup. The wrong answers to these cursory questions about board composition should quickly raise red flags.
The board should be the donor’s advocate. If an organization can’t meet the basic standards behind these 5 questions, I wouldn’t have confidence in the internal leadership accountability and active board governance necessary for a fiscally responsible organization. If you want to go one step deeper, ask an organization for 3 years of board minutes. That will give you an inside at look at whether or not the board plays a balanced and strategic fiduciary role or plays the extreme roles of a laissez-faire board on the one hand or micro-managing board on the other.
Without an on-site observation, survey or series of interviews, it is difficult to gauge the leadership qualities that a successful CEO and senior management team need. A cursory evaluation that proposes to evaluate the leadership team must settle for analyzing a few health indicators. Three health indicators that can be analyzed from a distance are: (1) strategy, (2) realistic self-assessment and (3) staff turnover rate. The (1) strategy that the CEO and senior staff members develop and share with the board will be treated an entirely separate evaluation category. I will address it in a few months in a post about Organizational Health Indicator #5: Strategy. Here I will explain the relationship between a sound leadership team and an organization’s (2) self-assessment and (3) staff turnover rate.
The simple way to gauge a leader’s realistic self-assessment is a SWOT (Strengths, Weaknesses, Opportunities, Strengths) analysis. Most visionary leaders will have an easy time describing the organization’s "Strengths" and future "Opportunities." The most telling category of the SWOT is "Weaknesses." I have witnessed on too many occasions the inability for a leader to identify more than one weakness. All too often the only reported weakness in the nonprofit world is "lack of funding." When a leader surveys his organization and only finds the need for it to be bigger, I lose confidence in his or her ability to make strategic adjustments for quality assurance and mission achievement. Any SWOT should easily have 2 or more weaknesses that the CEO or senior management is currently working to address.
As for the value of analyzing "annual staff turnover rate," it tells me one of two things about an organization (remember NOT to calculate seasonal staff in the rate). If the organization of substantial size has a turnover rate of 0%, I’m suspicious. Far too often in the nonprofit sector, organizations do not have leaders with the resolve to fire underperformers. Low performers are looked at as charity cases with good intentions rather than employees with poor production. If I find an organization of any substantial size that has the opposite problem of 25% or higher turnover, I am immediately concerned about the continuity of the programs. How can the organization build staff expertise and meaningful relationships with beneficiaries if personnel changes all the time?
Is there a one-size fits all "nonprofit evaluation"?
Analyzing the above-mentioned board governance and leadership team health indicators gets you past step 1 of my 6 step process for a cursory evaluation of nonprofit performance. The next post will explore the universally applicable standards I recommend for evaluating Financial Management. If you are wondering where to find the data needed for this cursory evaluation, www.IntelligentPhilanthropy.com provides it to subscribers in 2-page Analytical Overviews that can be acquired on any U.S.-based 501(c)3.
Now the very idea that common standards could be used to measure local, national, and international charities of every kind and creed can seem over-ambitious. How can one size really fit all? That question has forced me to limit the standards to only 30 due to program and operational differences. But I refuse to believe we have learned nothing that is generally applicable to all nonprofits in the last 100 years of active American philanthropy. At Excellence in Giving where I work, we have read and practiced, tried and evaluated, listened and learned for the last 10 years. We stand on the shoulders of foundations and consultants, nonprofits and public officials, program officers and investigative journalists. Much has been learned about finding and funding high-performing nonprofits. And that is what we want to share and popularize. Our goal is to boil down the best practices that have been identified and produce a streamlined, standardized approach to evaluating charities. We hope the results empower donors of all sizes and sophistication to get informed quickly and give more wisely.