Transparent donors, opaque grantees — high time for a nudge

TEDxYerevan 2010_changeBy Hans Gutbrod, Ph.D.

In recent years, donors have increasingly embraced transparency and accountability. Transparency seems to be on its way to becoming the new norm for donors. Yet at the same time, many nonprofit grantees are lagging behind. A recent study by Transparify, the initiative I work with, has shown that even among the world’s leading open data advocacy groups, over half are not fully transparent about who funds them. Similarly, despite significant recent improvements in that field, over half of major think tanks worldwide still do not fully disclose their funding online.

The cost of this opacity was brought home powerfully to me when I was working at a donor organization and needed to go to lunch with a colleague on the same corridor, just to understand what work his program was doing with some of our grantees. We needed to talk to each other because sharing this basic information through an internal database was cumbersome and the data did not capture intent. As for the relationships of our grantees with other donors — who gave how much, when, and for what purposes — we usually simply did not know.

Grantee opacity causes severe problems for all stakeholders involved. For donors it precludes effective coordination, leveraging of synergies and avoidance of overlaps. For grantees, working with blindsided funders leads to inefficiencies and cycles of over- and underfunding. For external stakeholders such as local government bodies, it makes it hard to identify who is doing how much of what, and when current funding is likely to run out. Finally, financial opacity undermines the reputation of integrity and credibility of the nonprofit sector as a whole because citizens are left wondering where all that tax-exempt money comes from, and what it gets spent for.

Transparent organizations are part and parcel of a modern democratic society, not an optional add-on; this applies to grantees as well as to their funders. However in terms of transparency, some very good donors have a remarkable number of not-so-good grantees. How can the sector move forwards?

  • First, it is important to realize that the most useful location of information on projects is on the grantee’s website, where it’s visible to everyone – donors, potential partners, citizens and any other interested stakeholder. Crucially, compared to a donor database, the grantee’s website is far closer to the interface where the grant money (hopefully) benefits citizens, and thus the best location to render account to beneficiaries.
  • Second, donors can easily nudge their opaque grantees by making transparency the new default setting. The cost of doing this is negligible to both donors and grantees, as recent experiences in Georgia (Caucasus) have shown. There, two innovative donors, the Eurasia Partnership Foundation in Georgia and the ACCESS Program of the East-West Management Institute have recently added a single line to their grant application forms that asks potential grantees to provide a link to their own financial disclosure webpage. This nudges all applicants to update their websites and disclose information on who funds them, with what amount, for what purpose, to show that they align with the donors’ preference for transparency. Other donors are planning to implement similar changes soon.

There are many excellent arguments in favor of transparency. Some of the most compelling arguments have been put forward by grantees themselves, including by the Center for Global Development, Global Integrity, Natural Resources Governance Institute, Sunlight Foundation, Stimson Center, Transparency International Georgia, and the World Resources Institute. Equally, a compellingly simple gold standard for nonprofit transparency exists in the form of Transparify’s 5-star benchmark.

With a simple nudge — a one-line addition to the application form (see examples here and here) — donors could advance such transparency. The first innovative donors are beginning to implement this change. We hope this will spread so that transparency indeed becomes the norm.

Dr. Hans Gutbrod coordinates Transparify, which provides the first-ever global rating of the financial transparency of major think tanks. Image: PAN Photo

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