Will the Real Nonprofit Sector Please Stand Up

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The past nine months have shown the nonprofit sector at its most compassionate yet most vulnerable. Like the federal government, the nonprofit sector was open for business the morning after the terrorist attacks on New York City and Washington, D.C., reassuring the nation that the civic infrastructure would not be bowed by terrorism.

Unlike the federal government, most nonprofits nationwide never closed the afternoon of September 11. They continued to deliver the meals, help the homeless, treat the ill, protect the environment, and promote civil liberties just as they had the day before.

The nonprofit workforce showed up before and after the attacks and showed up for exactly the right reasons. According to our research, nonprofit employees are much more likely than their counterparts in the federal government or private sector to say they took their job to help the public, make a difference, and do something worthwhile, not for the job security, salary and benefits, or a secure pay check. Just 32 percent of federal employees and 20 percent of private employees said they joined their sector to help people, compared to 60 percent of nonprofit employees. (The State of the Nonprofit Sector by the Brookings Institution will be published this fall in the Nonprofit Quarterly.)

Perhaps that is why so many Americans have more confidence in charitable organizations than they do in either of the other two sectors. Asked in a July 2001 Independent Sector survey how much confidence they had in charitable organizations, 91 percent of respondents answered that they had either “a lot” or “some” confidence in charitable organizations. When the Center for Public Service asked about confidence in charitable organizations in December, our numbers had only dropped slightly from the July level to 88 percent.

In July, only 29 percent of Americans said they trusted the federal government to do the right thing “just about always” or “most of the time.” By October, however, this level of confidence had surged to 57 percent, and remained perched at that level well into December.

The high level of confidence in nonprofit organizations and such a committed workforce are remarkable attributes that should give us strength during challenging times. Trust originates from organizations performing with complete integrity and general excellence in operations. In recent months the nonprofit sector has been at its best, helping others in amazing ways.

Early stories in the news about the remarkable surge in giving associated with the September 11 funds were soon replaced with questions about the sector’s ability to spend the money wisely. Questions centered on some of the larger charities that found even their relatively strong infrastructures strained by massive public giving and more profoundly around their choices for methods of disbursement (see the article on page 16 on the latter point). In fact, without a strong pre-set media agenda there was probably no way for the sector to stay out of hot water.

To the extent that Americans have followed the news since September 11, they cannot admire the nonprofit sector they have seen. The sector has been portrayed as embattled and under-resourced at best, and untrustworthy and confused at worst.

Bill O’Reilly, the pugnacious anchor of Fox News Channel’s The O’Reilly Factor, spearheaded public scrutiny in this case. O’Reilly was the first to exploit the sluggish disbursement of the Red Cross Liberty Fund—the largest of the September 11 funds. The Red Cross was guilty of bureaucratic sloth, O’Reilly charged, and diverting at least some of the Liberty Fund to administrative needs.

On October 5, he dug into the slow disbursement issue on his nightly “Unresolved Problem” segment with guests Lynda Fiori, a young widow with two children who had lost her husband in the Trade Center collapse, Bernadine Healy, president of the Red Cross, and New York Attorney General Eliot Spitzer. In a point-counter-point style, O’Reilly stated, “Ms. Fiori was assured that she would be helped by this agency. She hasn’t gotten anything from them. Are you [Spitzer] going to look into that?”
Spitzer replied, “We will be working with the charities to make sure that they understand where people need assistance, they don’t duplicate, they don’t waste the money.”

O’Reilly continued, “You’re the guy then. You’re in charge. You’re going to make sure it happens and that this money isn’t stolen.”

Spitzer responded, “We’re going to make sure that it isn’t stolen, we are going to try to provide guidance to people in the form of information and there’s a public trust here, and the public trust is going to be protected.”

In this way, O’Reilly’s frame on the issue—one that assumed a high level of incompetence and malfeasance—was reinforced. O’Reilly, maybe not strictly on the side of fairness, only later noted that the Red Cross had mailed Ms. Fiori a check soon after the attacks.

O’Reilly also accused the Red Cross of misleading the public about the intended use of donations to the Liberty Fund. Healy responded by noting that all requests for donations contained fine print clearly stating that the Liberty Fund was to be used “for this tragedy and emerging needs from this event.” O’Reilly countered that the fine print was irrelevant given the banner headlines promising that contributions would be used to “help save lives.”

Under attack from O’Reilly and a growing number of oversight groups, Healy resigned on October 26 in an elaborate pageant unsuccessfully designed to minimize the turmoil at her agency. Three weeks later, on November 14, the Red Cross announced that it would restrict distribution of money from the Liberty Fund to people directly affected by September 11. “The people of this country have given the Red Cross their hard-earned dollars, their trust and very clear direction for our September 11 relief efforts,” said David McLaughlin, chairman of the agency’s board. “Regrettably, it took us too long to hear their message. Now we must change course to restore the faith of our donors and the trust of Americans.”

O’Reilly took credit for Healy’s resignation in a Washington Times op-ed piece published on November 19, declaring that the “Red Cross has surrendered,” while castigating the national media for their inattention and promising further inquiry into the “charity chaos” at the United Way of America.

Where ratings lead, Congress is almost always sure to follow, which it did with a hearing before the House Committee on Energy and Commerce on November 6. The hearing generated more heat than light as one committee member after another attacked the Red Cross and its now former president, Healy. “Something’s wrong,” said chairman Billy Tauzin (R-Louisiana), promising future oversight hearings on the state of the nonprofit sector. “I think you took advantage of a very tragic situation,” said Representative Bart Stupak (D-Michigan), accusing the Red Cross of using money from the Liberty Fund to cross-subsidize its long-term institutional needs.

Next Target: United Way

On a roll, O’Reilly turned to the United Way as his next target in a November 26 exchange with September 11 Fund director and former U.S. Comptroller Joshua Gotbaum. O’Reilly moved through the interview with typical speed and increasing vitriol, eventually trapping Gotbaum on a simple point: the September 11 Fund would not take any administrative fees from its $343 million, but would allow grantees to charge administrative overhead.

O’Reilly began, “All right, now, look, you’re dancing, and I’m getting steamed. You say you’re not taking any administrative costs, and I believe you.”

Gotbaum replied, “That’s right.”

O’Reilly continued, “But that’s a shell game, if you’re giving to other people who are taking administrative costs out.”
Gotbaum’s response was a reasoned, “Bill, I got to tell you, I don’t agree with you, and here’s why… We fund the cost of delivering services to the victims and their families… If we waited until we had volunteer people and volunteer facilities and volunteer computers, the victims would be waiting until Kingdom come.”

In a sense, the Red Cross became a victim of the public’s generosity, because the outpouring revealed the weaknesses in the organization’s infrastructure. It did not have the refrigerators to store all the blood that had been donated and desperately needed a new telecommunications and information system to distribute the money quickly and wisely. Internal policies designed to protect the privacy of beneficiaries prohibited the Red Cross from participating in developing a master list of victims that could be shared by the hundreds of other relief agencies engaged in the legitimate effort to help the families of the 3,000 victims of the disaster. And, finally, rifts between the board and executive leadership of the Red Cross became glaringly obvious under public pressure—creating confusion as it retreated from its perfectly justifiable policies on distribution of monies and feeding into the public perception of misbehavior.

In contrast, United Way hung relatively together in its message to the public, providing a strong alternative explanation to the accusations launched by O’Reilly.

Even though the nonprofit sector lost only a few percentage points in public confidence in the wake of September 11 and probably only for a short period, it can expect intense scrutiny far into the future. Oversight groups have moved quickly to link the Red Cross controversies to their long-standing calls for greater accountability.

On the oversight front, the Better Business Bureau’s Wise Giving Alliance alerted the press to the accountability issue on October 17, when it re-released a spring 2001 public opinion survey under a new headline, “Donors Expect Charities to Adhere to Ethical Standards.”

Then two weeks later, they re-released the survey again, this time under the headline, “Accountability Challenge for Charities,” with a heavily explicit lead:

“The stakes are high. How recipient organizations spend these funds, their success in addressing both immediate and longer term needs, and perhaps most of all, their willingness to make prompt public disclosure of their activities, will strongly impact future charitable giving. Donors want to support charities but this desire is coupled with high expectations for charity accountability.”

According to a Center for Public Service survey conducted in mid-December, 60 percent of Americans said they were following the Red Cross and United Way story very or fairly closely. This meant that the Red Cross and United Way story rated number five on the public’s news agenda in mid-December, ahead of the Enron bankruptcy.

One explanation for this may be in what the public expects of us. We are established in stewardship and public trust. Therefore, the specter of questionable dealings may be more troubling when related to nonprofits than in the case of businesses, where the public expects there to be a fairly high level of self-interest, or government, where if the confidence ratings are any indication, public expectations are usually very low.

In any case, we need to think more carefully about the way the public thinks about us. On the one hand, we should recognize and work with the asset of public confidence. And on the other hand, we need to be very conscious of whether and how we ensure that we measure up to that confidence. This measuring up has to do first, with our performing with complete integrity, and second, with our being able to communicate this properly to the public—as seen in the United Way experience. In the case of the Red Cross and in other scandals before it, the cost of failing to accomplish both tasks accrues to the sector as a whole.

Paul Light is vice president and director of governmental studies at the Brookings Institution and author of Making Nonprofits Work and Pathways to Excellence: Achieving and Sustaining High Performing Organizations in the Nonprofit Sector (forthcoming).