VideoWithin 24 hours of the tsunami hitting southeast Asia on December 26th 2004, more than 230,000 people were dead, 1.7m people displaced, 430,000 homes destroyed and some €10 billion of damage done in 14 countries. It immediately became a showcase for aid agencies and other nonprofit organisations. As some €11 billion of donations flowed in to their coffers—the largest and fastest charitable response ever—international aid agencies raced around the region to provide care for the survivors and begin the massive reconstruction work.
Nearly two years later, however, recriminations abound. The nonprofit bodies have been coming under fire for poor planning and control, amateur management and a lack of transparency, leaving donors, beneficiaries and the general public uncertain about the credibility and trustworthiness of organisations they'd put faith in. These criticisms appeared in a report published in July by the Tsunami Evaluation Coalition, an independent body that includes more than 40 humanitarian agencies and donors, which assessed the first 11 months of the relief effort. One of its observations: "the urgency to spend money quickly and visibly led to many poorly executed aid projects and acted against the best interests of the affected people." All told, the report concludes, it's been a missed opportunity.
Though unique simply by virtue of its scale, the tsunami relief effort speaks volumes about the state of the entire nonprofit sector. Having sat comfortably for years between governments and companies, nonprofits are suddenly at a crossroads as their number and size reach record levels. Over the past year, 5,000 new nonprofits were registered in the UK alone, bringing the national total to nearly 200,000, with a combined annual income of nearly €30 billion.
On top of this, pressure to take a more businesslike approach to their affairs is coming from a new wave of philanthropic billionaires. Bill Gates, Warren Buffett, the Google founders and the rich donors behind Bill Clinton's Global Initiative are among those forcing their results-driven culture on the nonprofit sector. Their sheer size ensures they'll have an impact. In October, Clinton clinched some $7.3 billion (€5.7 billion) of pledges, which will be focused on causes like combating poverty and climate change. Meanwhile, Google founders Larry Page and Sergey Brin, personally worth more than $8 billion each, have said their new Google Foundation will aim to invest in for-profit projects that tackle global woes. Outdoing all of those, businessman Buffett earlier this year said he would donate $37.4 billion of his wealth to charity, $31 billion of which is being earmarked for Bill and Melinda Gates's already wealthy foundation, which has earned a reputation for its rigorously results-focused approach to giving.
For the traditional nonprofit sector, this is both a threat and an opportunity. Some of the largesse will, undoubtedly, make its way to their organisations. But it also means that public scrutiny of nonprofits' efficiency and effectiveness will continue to intensify.
This puts nonprofit finance teams at centre stage. In the following pages, CFO Europe profiles some of the efforts that finance chiefs of five major international nonprofits are making. Some of the ideas are big, some small, some borrowed from the for-profit sector, others unique to nonprofits. All are aimed at bolstering the credibility of working for a good cause.
International Committee of the Red Cross
In terms of financial reporting, the ICRC is streets ahead of other nonprofits.
After all, it was the first major humanitarian organisation to adopt international accounting standards back in 2001, says Doris Pfister, the ICRC executive committee member in charge of finance and fundraising. It's able to provide pages of financials and other information about the support it provides for millions of victims of conflicts and natural disasters, right down to the last jar of baby food. But like other nonprofits, the ICRC struggles to show whether it has delivered on the expectations of its beneficiaries; that it has, for example, consulted with them, treated them with respect and dignity. "That raises all sorts of questions," says Pfister. "How would you define good performance for a humanitarian organisation?"
A big part of the challenge is the absence of meaningful metrics that can be applied consistently and efficiently to what nonprofits call "accountability." It's even harder in the emergency situations that are the speciality of the ICRC—the Geneva-based umbrella for the global relief efforts of Red Cross and Red Crescent bodies. "We're not talking New York, Paris, Tokyo that we're dealing with," she says. While it can fly in emergency supplies to victims trapped in a remote war-ravaged village at the drop of a hat, it's not always obvious how its mission benefited the victims, whether the right supplies were delivered and so on. Also, "the way delegates relate to people in the field is very important," says Pfister, a former journalist who began doing fieldwork for the ICRC in 1989. "It's something you just can't measure."
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