Nonprofits and Demands for Transparency and Disclosure

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April 21, 2014; Corporate Counsel

“High levels of corruption…are often correlated with less media freedom,” writes Alexandra Wrage, president of TRACE, a nonprofit anti-bribery compliance organization. “The reverse correlation is also true: recent events in Brazil and India indicate that as media freedom increases, public expressions of impatience with corruption increase.”

Many nonprofits are concerned about negative coverage in the media and are intent on crafting messaging and branding campaigns to overcome what they perceive as the media’s overemphasis on nonprofit problems. But do nonprofits really suffer from too much negative coverage? Or does has the expansion of social media made it inevitable that stories of mismanagement and corruption, though not necessarily more frequent than before, get wider and quicker coverage and circulation? Our perception is that social media is critical in promoting transparency among nonprofits and in society overall.

In Connecticut, for example, with the backing of the New England Health Care Employees Union, District 1199, the administration of Governor Dannel Malloy has promoted legislation requiring nursing homes to disclose financial information about “related party” businesses that contract with the nursing homes, including reporting profits and losses for related party businesses that receive $10,000 or more a year from the homes. (The original version of the legislation included nonprofit nursing homes in the related party disclosure requirement, but the legislation has since been amended to exclude them.)

The need for improved disclosure regarding the Red Cross’s expenditures of Hurricane Sandy relief funding is clear, as evidenced by the results of a ProPublica investigation that revealed shortcomings in the national nonprofit’s reporting, despite its distinctive role in disaster relief. A comparable situation apparently occurred in Portland, Oregon; there, the nonprofit through which the city ran its streetcar system’s development and administration, Portland Streetcar, Inc., was shown in an audit to have significant flaws in its reporting. Clearly the city’s requirements were completely insufficient, but Portland Streetcar seems to have fallen short of even those basics.

Without expanded disclosure, nonprofits don’t get to tell their full stories, denying the public a true understanding of the multiple issues involved in their work. That leads to stories like this one from 100Reporters, an organization initially funded by the Ford Foundation “to raise the caliber, impact and visibility of citizen-driven investigative journalism as a means of promoting transparency and good government,” titled “(Non)profit Hospitals: Full Disclosure the Exception.”

“Very few nonprofit hospitals say how many patients they serve, or explain how they calculate the cost of care for indigent, uninsured patients,” writes Rita Healy, the author of the 100Reporters special report. “The Internal Revenue Service regards this as optional information.” Assume that the IRS or other public entities really don’t require x or y in terms of disclosure; that doesn’t mandate that nonprofits opt for the lowest common denominator. Nonprofits can choose a higher standard as part of a belief that more disclosure is a public benefit and to provide it a public duty.

One of the most common areas of nonprofit resistance to disclosure involves salaries. In the Charlotte area of North Carolina, four charter schools have announced that they will refuse to reveal salary information not just for their top leaders, but for some or all of the charter school staff, despite the legal obligation to do so. “I don’t want Sally to know what Jimmy got paid,” said Richard Vinroot, a former mayor of Charlotte who works with the Sugar Creek and Lincoln charter schools. “It would create disruption within our school.” Vinroot is ignoring that charter schools are organized as public schools and their salaries are required to be open to the public for review even if the contents of employees’ personnel files are not. Vinroot’s specific statement about Sally and Jimmy, however, runs straight up against the historic lesson of Lilly Ledbetter, which besides constituting an argument for pay equity, also suggests that it might be important for Sally to know about and talk about Jimmy’s compensation to see if she is being paid fairly.

With the advent of social media, the sort of information that once would have gotten little press attention even if it were disclosed now gets circulated and discussed widely in what seems like nanoseconds. In fact, as Americans, we should all realize that disclosure, communications, and information dissemination is hardly our nation’s strong point. In the most recent Social Progress Index comparison of over 130 countries, when it came to access to information and communications, the U.S. ranked 23rd, one spot below Jamaica and one spot above Latvia (Iceland, Norway, Sweden, Denmark, and the Netherlands ranked as the top five on this indicator).

When nonprofits and public agencies accede, as they inevitably must, to requests for increased transparency in their operations, social media will make their revelations quickly known to multiple constituencies. Nonprofits should be pushing the boundaries of disclosure and welcome the dissemination of information. It is the core to the function of nonprofits as a bulwark against the persistent weakening of American democracy.—Rick Cohen

  • Ralph Brower

    In addition to the LIlly Ledbetter application, I would add two other implications of the charter school’s argument for non-disclosure of salaries: It keeps all teachers from checking collectively about how well they are being paid relative to public school teachers; and it is a form of privacy that is not extended to public school teachers, whose salaries have long been open to public disclosure. I suspect full disclosure would illuminate the former dynamic more — that charter schools are generally hiring teachers on the cheap. This is yet another erosion of the consumer buying power of the middle class. Furthermore, public policy debates about the utility of charter schools remains focused on the veneer of cost savings, aided by the absence of information about the other longer-term effects of charter schools.

  • Justin Pollock

    Transparency is ultimately a piece of the integrity puzzle. If you cannot justify how an organization’s resources are being used to accomplish community change and benefit, you fail the integrity test. Saying people just won’t understand or might be upset, means you are not particularly good at communicating or your case is weak.
    The highest potential of any organization is to be in a place where you can clearly articulate the change you make possible, the resources you engage to make that work possible, and can demonstrate the effectiveness with which you do it. If all that makes sense, there should be nothing to hide.

    Secrecy is only necessary when you have something to hide.

  • Rick Cohen

    And, when groups resort to secrecy, the stuff that eventually comes out makes groups look worse than they ever would if they had simply revealed and shared. thanks for your comment.