Nonprofits debate merits of admitting failure
Puget Sound Business Journal
Friday, October 28, 2011

Tacoma-based nonprofit A Child’s Right is doing something a bit controversial these days: admitting failure. The group, which provides clean water systems in the developing world, is staking its financial future on transparency. The group wants to attract donors who have realistic expectations and won’t pull funds when things go wrong. “We actually think it’s more fruitful in the long term,” said Peter Drury, development director.

A Child’s Right posted pictures on its website of orange water from a failed system it had installed in Nepal that couldn’t handle the region’s high volume of iron. Resolving the problem took more money and time than anticipated, but A Child’s Right shares its project financials — even when the numbers are over budget, said Eric Stowe, the nonprofit’s founder and director. When to admit failure is an intense debate going on in the nonprofit sector, where some leaders worry that good intentions for transparency will backfire.

A notable example of that is The Global Fund, an international partnership based in Geneva that works to treat diseases in the developing world. In January, news exploded of mismanaged funds. Media treated the news like an investigative report, but the story had come out because the Global Fund had freely released information about the unaccounted funds — some $34 million out of a total $13 billion disbursement — in a detailed report. The group had been working to correct the situation when the news broke. “To be perfectly honest, we were taken aback by what seemed to be a negative media onslaught,” said Andrew Hurst, spokesman for the Global Fund. “Our feeling was that some of the reporting to an extent misrepresented (the Global Fund), or at least was misinterpreted by some of the people who received that information, and it gave rise to a lot of negative commentary.”

The largely negative reaction raised concerns for many nonprofits that were considering admitting their own failures. “You can’t help but be a little gun shy,” said Lisa Cohen, founding director of Seattle-based Washington Global Health Alliance. “Hopefully, we can learn from this. It’s a very complicated, and kind of a frightening climate when you have people so willing to jump in and vilify and take things out of context.”

Still, many — including Cohen — argue transparency is a valuable tool for communicating with donors about the realities of how their money is spent and the challenges of creating real change in the developing world. “We need to learn from what didn’t work,” she said. “You learn more from that sometimes than from what did work.” That’s the approach that leaders of A Child’s Right took when they recently launched a program called ProvingIt, which closely tracks the exact number of children they provide clean drinking water to every day. The group continues to monitor and upgrade the water systems for 10 years, with the idea of helping local governments prepare to take over in the 11th year.

But it’s not all good news; the nonprofit freely shares stories about its failures, including the orange water problem in Nepal. “Hearing them talk about failure makes us more excited to support them because their ability to admit when things aren’t working — and the attention they are paying to that — inspires a lot of confidence,” said Katie Briggs, managing director of the Seattle-based Laird Norton Family Foundation, one of the group’s major funders. “Honestly, I wish more would do that.”

Many nonprofits, according to A Child’s Right’s Drury, feel pressure to present a perfect image at all times, or risk losing donor funding. “You’ll hear people in business say all the time that the only way you learn is to fail … but in the nonprofit sector people get so scared to talk about failure,” he said. “The overwhelming number of organizations have a disincentive to tell the full truth, the unvarnished truth, at all times because of what it will mean for donations.”

Marc Bellemare, a development economist who teaches public policy and economics at Duke University, views admitting failure as a public relations move to enhance credibility and reputation, similar to touting corporate social responsibility efforts in the for-profit world. “When I started hearing about admitting failure, it is very nice, but there’s nothing that prevents you from learning from your own failures without having to admit them,” Bellemare said. “For me, it really is a marketing tool more than anything.” However, he said the move toward disclosure could eventually have a positive effect overall, when it reaches a tipping point and every nonprofit has to be more forthcoming about failure. “We may soon be moving toward a new equilibrium where everyone has to admit failure, and say ‘where did we go wrong?’” Bellemare said. “Everyone has to look contrite in a way — or else they start looking suspicious.”

Still, disclosing the failure of a project or cost overruns is less scary for nonprofits than disclosing financial mismanagement or fraud, Bellemare said. “That’s a whole different ball game,” he said. “I think it’s much more likely to scare away donors than failure of projects.” Many groups argue that admitting failure is more than just image insurance; it’s part of helping donors better understand the complexities of doing work in global development.

“I think in our case, we’ve actually found it’s competitively advantageous in fundraising, and also in terms of supporting the causes that we love most, to have disclosure,” said John Beale, strategic development director for Seattle-based VillageReach, a group that works to improve access to healthcare in remote parts of the developing world. The group makes available its tax documents and annual independent audit information on its website. VillageReach also has updated its scheduled reports to notify donors when projects are running behind and hitting technical problems.

“It’s not merely an exercise in admitting failure or explaining success,” Beale said. “It’s giving context for what we do. I think more organizations would be more comfortable with being transparent and admitting failure if they had already made an effort to explain to donors what they are trying to do in the first place.”

Valerie Bauman covers nonprofits, biotech and research for the Puget Sound Business Journal.

In contrast, Stacey Cunningham, VillageReach’s Project Manager for our Malawi Maternal, Newborn, and Child Health Project Malawi Maternal, Newborn, and Child Health Project recently sent pictures of a village clinic operated by VillageReach and the Malawi Ministry of Health. These mothers are seeking medical treatment for their young children to prevent them from dying from afflictions common to their area: malaria, pneumonia and diarrhea. The village clinics are rudimentary but effective in treating medical challenges that are barely given a second thought in the United States. Unfortunately, medical resources are still very limited and far too many children die of easily preventable diseases.

When faced with a serious medical challenge, it’s common to be overwhelmed with a rush of thoughts and emotions. In the midst of that swirl, the picture of this young boy caught my eye. With a simple twist of fate our birth places could have been reversed. I can’t say I have sorted out the bigger picture, but I do know there is a serious problem with lack of access to quality healthcare and it’s time to act. And for me, it’s personal.

Allen Wilcox

VillageReach’s work is often conducted in close partnership with governments. We’re not in the practice of creating or running health systems. Instead, our role is to strengthen what exists – typically the public health system. For example, in Mozambique we work with the provinces to implement a vaccine logistics system, and the work only starts when both partners are ready. For our own purposes, we must plan our work and forecast what needs we will have. Naturally, we base our plans on what we know about the provinces: eg. financial, personnel and transportation resources, and broader scheduling plans for various other health program initiatives.

But situations often change for government agencies and communities in low-income countries with limited resources. As a result we may publish plans that don’t coincide with the unique scheduling and resource planning priorities of the government.

When government representatives see our plans, they may naturally jump to the question, “whose health system is it anyway?” and wonder why VillageReach is making plans for them.

Planning is best done by talking with government partners about when they will be ready to work on a program. Their assumption will be that we have identified the resources before we begin discussions with them. Of course that is not always the case – we will want to present a case to donors that indicates prior government commitment. If our response to the provinces is that we haven’t [yet] identified the resources, then they may question our ability to make a long-term commitment.

In a similar vein, being transparent raises questions of data ownership. We strongly believe that it is critical to have data for monitoring and evaluating the impact of our work, and our donors and partners agree. The extent to which we share that data publicly is not always agreed upon with our partners. For example, when we carry out a baseline study with household surveys about vaccination coverage rates, that data and decisions about sharing it don’t belong to us – they rest with the government who factors in the various reporting obligations it has to other constituents, including other government and private donors. An important fact to consider in understanding government decision-making in low resource countries can be seen in what dependencies these governments have on external parties – as an example, as much as 70% of the public health budget may be supplied by donors.

We want to report on our program data, yet at the same time, the government needs to report on national indicators to other donors. The story the national data supports and the story for a province might be very different. The more NGOs, the more complicated this becomes for the government.

So balancing transparency for our donor partner needs and our government partner needs is a challenge. We’re committed to the principle of transparency – without it we might alienate donors, or at least limit their ability to make informed decisions about investing in our expertise and contributing to our programs. We’re similarly committed to being a trusted partner to governments we work with in order to ensure we’re valued and our expertise is applied at the greatest scale for maximum benefit.

Leah Hasselback

Kevin is concerned about evaluations of impact, or the lack thereof, in the social sector. He expresses frustration about the sector “…operating in a dysfunctional market for impact.” Kevin had just returned from the annual Skoll World Forum, as I had. He was struck with what he heard: that highly evaluated organizations with demonstrated impact can’t always attract the capital they require. Whereas “… zombie NGOs can operate for years …” This in comparison with the private sector, where capital tends to follow the most appealing investment cases. The lack of an established social sector marketplace, where entrepreneurs – the Doers – and investors/donors find each other efficiently through common standards of evaluation, is a source of frustration for Doer and funding organizations alike.

Kevin suggests the fault lies with investors/donors for the most part – they don’t always insist on stringent evaluations of the work they fund. That’s cause for concern right there because it suggests more could be achieved with the same resources, but isn’t.

But we can’t place all the blame on the sources of funding. Doers are also charged with evaluating their performance in order to improve results, and of course many already do this. But some Doers may be reluctant to make their results public, out of fear that the challenges they face will not be appreciated. Achieving sustainable results at large scale in international development is just hard, and can be unpredictable.

But I think you have to give the donor more credit. Our supporters want to see tangible evidence of our performance, but also explanations of the challenges. Many are not foundations or organizations – they’re individuals who want to make a difference. I’d make the case for individual donors being a real force for change in wanting to evaluate the impact that financial support provides for social causes.

The smart giving movement encourages measurable, sustainable impact for their donor dollars. There’s a growing number of people eager to track the Social Return on Investment (SROI) of their personal contribution. The movement doesn’t only encourage reporting of results. In fact, it seems investors/donors also respond well to organizations that document their plans. For our donors, results matter. But they gain confidence in us when they see project plans, program metrics and financial plans online. GiveWell, and their positive rating of VillageReach, is further evidence that being more public with plans for effecting change is a natural attraction for investors and donors.

Transparency itself becomes a differentiator. And we can always improve upon that.

On that note we recently published updates to our work in Mozambique, with new details of the project plan and the financials, with an explanation of what has changed. We’ve seen some delays in deploying the model to additional provinces, but we’ve also received support that enables us to plan more effectively for the longer term. See VillageReachFocus for details, including the updated program report.

John Beale

Allen Wilcox

Hey gang in Seattle! We hope you can join us for a fun evening of celebration and excitement here in Seattle.

The first-ever man vs. machine Jeopardy! competition will air on February 14, 15 and 16. As noted in the Seattle Times, Ken Jennings, the celebrated Jeopardy! contestant who broke the record for the most consecutive games played by winning 74 games in a row, is a local hero and is competing in mid February with the IBM Watson computing system. Ken has generously named VillageReach as beneficiary for half of his winnings at the competition.

The VillageReach team and friends will be getting together on the evening of February 16 to watch the final show and find out the results. Please join us to watch the fun and cheer on Ken!

Where
Dad Watsons Pub
3601 Fremont Ave. N.
(corner of Fremont Ave. N. & N. 36th St.)
Seattle, WA 98103
(206) 632-6505

When
Wednesday, February 16, 2011
6:30 p.m. – whenever you like.
Jeopardy airs at 7:30 p.m.

RSVP
Please RSVP to make sure we reserve enough space.
Email: john@villagereach.org.
Tel. (206) 925-5203.

Exciting news for us today as the popular game show Jeopardy! is announcing further details of the competition that will pit man against machine.    Ken, who broke the Jeopardy! record for the most consecutive games played by winning 74 games in a row, has selected us as beneficiary for half of his winnings from the competition.   See more details in our announcement and this one from IBM.   We’re thrilled Ken selected us after reviewing many non-profit organizations.

As Ken noted:  “VillageReach’s innovative approach to improving access to healthcare and their commitment to documenting the results of their work for donors motivated me to select them for the Jeopardy! competition.”

Where will you be February 14, 15, and 16?

Go Ken!

And VillageReach was there too.  Craig Nakagawa, our CFO, and Keely Stevenson, from Bamboo Finance, lead a great session on the just-announced investment in our Mozambique propane business, VidaGas. Titled “Anatomy of a Social Investment,” the session covered the development of the business, its impact on the health system it was created to serve, and Keely and Craig looked at future opportunities for social businesses in Sub Saharan Africa.

A couple of interesting takeaways from the session:

- the need for patient investors in social business ventures is key for both the initial development and long-term sustainability of these businesses.  In our case, VillageReach’s hybrid non-profit/social business model has proven to be very valuable.  Initial investment for VidaGas was supported by donor contributions, that otherwise would have been spent on the purchase of fuel and equipment that VidaGas sells to the market.  We see this approach as a winning formula for donors who are interested in achieving long-term impact for their contributions.

- Keely noted there are few base of the pyramid social ventures operating today.  Some businesses have been created that serve middle-income communities that then attempt to reach out to lower-income consumers, but this can be a challenge where profitability is a requirement.  Keely highlighted VidaGas’ market development approach as ideal, whereby we launched the company with the government health system as our initial anchor client, with some sales to lower-income communities also and then moved up-market to epand sales of the fuel to middle income consumers.

The investment has only just been announced, but we’re looking ahead to the future.  This week we’re meeting with a number of new investors to present a new proposal to broaden our base of household sales.  We’ve put together a comprehensive market development proposal that is intended to add new retailers for propane and stimulate greater interest from communities who have previously had to rely exclusively on charcoal for their cooking requirements.

Onward and upward.