Does the Nonprofit Sector Need its Own Dow Index?

November 17, 2017; ARNOVA

What would an Index of Health look like for the nonprofit sector? A panel at last week’s annual conference of the Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA) in Grand Rapids, Michigan, attempted to address this question. The session was chaired by an ARNOVA past president, Alan Abramson from George Mason University, and included research rock star Elizabeth Boris of the Urban Institute.

The private sector is awash in standard measures of success: the Dow Jones Industrial Average, Dun & Bradstreet’s Economic Health Tracker, and McKinsey’s tools in Organizational Health. But how do you measure the vitality of a sector as vast and diverse as the US’s nonprofit and philanthropic sector?

Perhaps our for-profit counterparts have an easier go at it because standard economic indicators practically measure themselves. It’s fairly straightforward to count things—things like jobs, profits, sales, or the number of companies. And while there is value in measuring some of these same benchmarks in nonprofit-land (number of organizations, percent of the workforce or the gross domestic product—or even the amount of charitable giving or hours volunteered), we can’t stop there. Mission-oriented, nonprofit structures cannot claim success unless they are demonstrating non-economic victory as well.

Any nonprofit leader who’s ever completed a report to a funder understands the difficulty inherent in measuring impact. Changing lives or social structures doesn’t happen in neat quarterly increments. Up-front investments may take years to show payoff. For example, there is now a convincing body of research surrounding the return on investment of early childhood education.

Research shows that children from lower-income households who get good-quality pre-Kindergarten education are more likely to graduate from high school and attend college as well as hold a job and have higher earnings, and they are less likely to be incarcerated or receive public assistance.

So, at best, it may be possible within subsectors of nonprofit activity (e.g., human services) to chart success. But can we do it as a sector, a sector so broad as to include hospitals, museums, land conservation, animal welfare, youth services, or ending homelessness?

Non-fiscal indicators floated by the panel of researchers from such institutions as the University of Texas-Austin, University of Nebraska-Omaha, Arizona State University, and Muhlenberg College included terms like “social capital,” “norms,” “values,” “trust,” “capacity,” and “networks” in an attempt to identify what ARNOVA might want to capture in a health index. Boris’s work with Sarah Pettijohn of the University of North Carolina at Charlotte is decidedly focused on determining state nonprofit culture, and in line with Boris’s long-term work at the Urban Institute, takes into account government-nonprofit relationships. Their model-in-progress would include measures across fiscal conditions and state regulation as well as the state social and political culture.

Even if practitioners and academics alike could agree on indicators of health for the sector, who would care? Who might an audience be for these reports? There was general agreement in the room that policymakers, the media, the general public, and nonprofit groupies themselves would find a sector health index of interest—which certainly raises the stakes.

As a sector, we could certainly be defined by what is measured, and sadly, by what is not. But, clearly in an age of greater scrutiny, greater demand for proof of performance, assaults on preferential tax treatment and general all-around competitiveness, there would be value if we can get it right. Oversimplification, or use of the wrong measures, could prove disastrous to the reputation or perception of nonprofits in America. But this doesn’t mean it’s not a dream worth pursuing.—Jeannie Fox