Trust and Performance

Why do we trust charities (non-profits, NGOs) so much more than we trust government or business? After all, each of these sorts of organisations are run by the same sort of flawed human being. Charities may have more obviously good intentions than business, though not perhaps government, but talking a more virtuous talk does not necessarily mean they walk a more virtuous walk.

Lately, survey after survey has found that levels of trust in charities are unusually high relative to trust in government and business, as Matthew reports in an article in the latest issue of The Economist. (It has not always been so: as we report in Philanthrocapitalism, a survey in Britain in 1948 found that 90% of the population thought there was no longer any need for charities.) A survey conducted for the American Express Leadership Academy found that seven in ten Americans (71%) trust non-profits more than they trust the government or industry to address some of the most pressing issues of our time.

The just published 2010 study of High Net Worth Philanthropy by Bank of America Merrill Lynch, produced by the influential Center on Philanthropy at the University of Indiana, found that 36.3% of high net worth households had a great deal of confidence in the ability of non-profits to solve societal or global problems, and another 58.2% had some confidence in them, making a total confidence rating of over 94%. That compared with over 68% (9.9% and 58.5%) who had similar confidence in large corporations; 58% (9.1% and 49%) confidence in the federal government and a mere 32% (2.1% and 29.9%) confidence in Congress. (Strikingly, in the context of philanthrocapitalism and the entrepreneurial spirit behind it, 38.9% of the high net worth people surveyed said they had a great deal of confidence in “individuals” solving global or societal problems, out of a total confidence score of 89.1%.)

Nor is this trust limited to Americans. Earlier this year, Edelman’s annual Trust Barometer found that NGOs are more trusted than government and business in Europe and even Asia, as well as America. A particularly dramatic change has occured in China, where trust in NGOs to “do what is right” has risen from 31% in 2004 to 56%.

But is this trust based on anythign more than the fact that charities (mostly) have good intentions? As we have written many times, the world of philanthropy and non-profits is remarkably opaque, even compared to business and government. There is woefully little debate about whether charities actually use money well – especially among the broader public, though all too often even in the private rooms where grantmakers dole out the cash.

As a result, though there are certainly examples of outstanding achievement by nonprofits/NGOs, it is entirely possible that the higher levels of trust shown in charities as a whole is less about what they deserve than a reflection of widespread ignorance of what they actually do behind the figleaf of their good intentions. As Martin Brookes of New Philanthropy Capital – an organisation that is actually doing some research into how charities make use of the valuable money they are given – told Matthew, “There is a great deal of misunderstanding about what charities do and how much they cost – and charities do little to correct the impression. In particular, the public believes, wrongly, that charities are largely run by volunteers rather than professionals and don’t accept money from government or provide srvices for government.” The worry is”, says Mr Brookes, that as a result of this ignorance, the “public’s trust in charities may be fragile.” We share his concern.

One thing that charities have in their favour, though we hope this is changing, is the public’s lack of interest in knowing much about the organisations to which they give their money. The people we talk to – many of them believers in philanthrocapitalism – tend to care deeply about ensuring that their money is put to good use, in ways that achieve maximum positive impact. So we were shocked earlier this year to read “Money for Good”, a report by Hope Consulting, which reported (on p19) that a survey of the richest 30% of American families found only 35% did any research into a charity before giving money to it. Of them, 74% spend less than 2 hours on that research (48% less than 1 hour) – and only 15% of them want a detailed report rather than a few simple facts and figures. How depressing.

Those who do want to find out about the performance of the charities they support have been frustrated by the remarkable lack of performance information published by charities. As a result, the best-known and most used ratings system for charities (in America), published by Charity Navigator, is seriously misleading. That is because it rates highest those charities with low overheads relative to revenues,  which may actually be applauding inadequate investment in say, hiring decent staff or effective back-office systems, rather than higher levels of efficiency. As we reported last year, its boss, Ken Berger, admitted that sometimes he “cannot sleep” for worrying that Charity Navigator’s ratings “may do more harm than good.”

True to his word, Mr Berger has been working hard to improve these ratings. On July 1st, Charity Navigator added a second dimension that took into account a charity’s transparency and the adequacy of its governance arrangements. Now it is working with New Philanthropy Capital, Keystone Accountability (an organisation focused on “measurement for social change”) and volunteer students from 7 universities, to pilot a third dimension: results.

Initially, when it is implemented (hopefully) in 2012, this third dimension will do nothing more than search a charity’s web site to find out if it publishes anything about the results of its activities, and grade the quality of that reporting. But, as Sean Stannard-Stockton points out in a useful post (complete with slideshow on the new ratings) on his Tactical Philanthropy blog, hopefully that will be the beginning of a process that will result in charities publishing more and better research about their performance – and, ultimately, getting far more bang for every charitable buck.

In the short run, it is possible that serious analysis of charitable performance will reduce the public’s trust – just as similar scrutiny has done to trust in government and business. But in the long run, a transparent charitable sector focused on delivering outstanding performance will surely regain any trust lost during the transition phase. And this time, there will be no doubt that the trust is deserved.