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For the nonprofit sector, trust is the universal currency. To earn that trust, non-profits need to demonstrate more clearly than ever how we deliver on our mission, while operating in an efficient and transparent manner. Those organizations that deliver on these expectations will strengthen their reputations and increase their competitive standing. Those that fail to do so risk their very existence. The non-profit sector needs to become more market drive and more responsive to the needs of community investors, in addition to maintaining higher standards of accountability and transparency.

Answering the Wake-Up Call
Change is Necessary for America’s Nonprofits
By Brian Gallagher

At United Way, we know full well the steep price that is paid when the public’s trust in a charity has been undermined and we also know apologies alone do not do enough to restore faith.

In recent years, a spate of scandals have involved some of America’s best known charities and according to a recent study by the Brookings Institution, confidence in charitable organizations stands roughly 10 to 15 percent lower today than in the summer of 2001. Only 11 percent of Americans believe that charitable organizations do a very good job of spending money wisely, which ranks almost two-thirds lower than the percentage who believe charities do an effective job helping people. No less troubling, the United Way’s own polling results find that merely 51 percent of Americans trust non-profits to do what they say they’re going to do with donations they receive.

The Senate Finance Committee has held substantive hearings on the governance and operational standards of America’s charities and among other considerations, are reviewing whether the IRS should review a nonprofit’s tax exempt status every five years to ensure that they continue to operate exclusively for charitable purposes. Multiple states attorneys general have urged their respective state legislatures to enact the local equivalent of Sarbanes-Oxley for nonprofit organizations, which would require CEOs of these groups to legally certify their financial statements. If we, as non-profit leaders, cannot or will not take the steps necessary to institute real change, we have no choice but to accept new legislation governing charities.

However, in a recent United Way Internet poll, we found that while trust in nonprofits is low, more regulation isn’t what a majority of people are looking for to increase their trust, since only 35 percent of respondents said they thought there should be more regulation of charities by the Federal government. The number one reason people don’t have faith or trust in the non-profit sector is that individuals don’t know how charities spend their money – 71 percent of respondents that don’t trust charities said their trust would be greater if they knew how the money was spent.

The fact is, today’s increased expectations of nonprofit organizations by policymakers and the general public actually constitutes a positive development for our sector. Those organizations that deliver on these expectations will strengthen their reputations and increase their competitive standing. Those that fail to do so risk their very existence. The non-profit sector needs to become more market driven and more responsive to the needs of community investors, in addition to maintaining higher standards of accountability and transparency. Good intentions alone don’t merit good will.

Accordingly, United Way of America established new Standards of Excellence, a comprehensive description of aspirational benchmark standards and best practices that are designed to enhance the overall effectiveness of the 1,350 United Way affiliates. They reflect the organization’s fundamental shift from its traditional role as a “pass through” fund raising organization to working with community leaders to identify and address long-term societal needs and improve people’s lives.

The release of the Standards of Excellence follows the implementation of new, stringent membership requirements for financial reporting and accountability. For United Ways across the nation, these standards reaffirmed the values of transparency, accountability and disclosure through compliance with our robust membership accountability requirements. However, over the last three years, there have been more than 50 United Ways that could not meet one or more of our stringent standards and have been disaffiliated.

Today, the primary measure of the United Way’s success is no longer the fundraising thermometer, but rather how well we deliver on our mission to make measurable improvements in communities nationwide. Local United Ways throughout America will offer an accounting of their operations against this key metric and we look to our investors, volunteers, partners and society as a whole to hold us to this higher standard.

Brian A. Gallagher is president and chief executive officer of the United Way of America.