Carnegie
Corporation
of New York
Fall 2005
BORN IN ADVERSITY AND AMBITION
The Standards for Excellence emerged from two unrelated events in the
early 1990s: a scandal at the United Way, and the 1992 hiring of an
ambitious, hard-driving consumer rights attorney—Peter Berns—to
be executive director of the brand-new Maryland Association of Nonprofit
Organizations.
Just as Maryland Nonprofits first opened its doors, revelations of egregious fraud at the United Way of America captured headlines nationwide. The episode, “cast a big shadow not only on the United Way system, but on the nonprofit sector generally,” Berns recalls. “It prompted us to begin thinking, ‘What is the nonprofit sector’s responsibility in the areas of ethics and accountability? What do we as an organized sector need to do to preserve the public trust?’”
Maryland Nonprofits created a committee to study the question and in early 1994 it developed the framework for a sector-led ethics and accountability initiative. Berns floated the concept to several foundations, but for more than a year, he says, “nobody was interested in funding it.” Finally in August 1995, Maryland Nonprofits received a $100,000 grant from the Charles Stewart Mott Foundation. The project’s goals were twofold: first, to help nonprofits improve their management and governance systems and become more ethical and accountable; and second, through these efforts, to boost public confidence in the nonprofit sector.
In talking with Maryland Nonprofits staff and others involved in the creation of Standards for Excellence, it quickly becomes clear that the planning process was singularly thoughtful and comprehensive. It began in June 1996 with a weekend workshop at the University of Baltimore where expert speakers from all over the country came to describe an array of approaches for setting standards and measuring nonprofits’ performance. After the weekend, fifty volunteers divided up into three committees. Over the next two years, one committee spent hundreds of hours reviewing dozens of existing codes, scouring reams of other literature and exploring options to define an ethics and management code for Maryland. The other two committees focused on packaging the Standards, promoting them, and developing a mechanism to deliver the code to nonprofits in a user-friendly format. “Everyone was really committed to creating something that was worthwhile and important,” recalls Sylvia Nudler, vice president of the Council on Quality and Leadership, a Maryland-based organization that certifies and accredits agencies working with the disabled. “We all had full-time jobs, and it took an incredible amount of time. But everyone very much stuck with it.”
The planning process reflected the perspective of its participants—nonprofit leaders intimately familiar with the peculiar and underappreciated challenges involved in running a nonprofit organization. Unlike businesses, the bottom line for nonprofits is mission, not profit: how then to measure the success of an organization and evaluate the performance of its leaders? Unlike businesses, much of the income of nonprofits comes in contributions from individuals: how then to ask for contributions and raise money in an ethical, efficient manner? Unlike businesses, nonprofits are tax-exempt organizations and therefore obligated to ensure that all funds are dedicated to achieving the mission, not enriching any individual: how then to set fair compensation levels for nonprofit executives? And how to erect financial safeguards sufficient to ensure that all funds are properly accounted for and efficiently spent?
Committee members knew that many nonprofit executives are not well equipped to address these and other management questions. As Amy Coates Madsen, Maryland Nonprofits’ Standards of Excellence program director, puts it: “A lot of the folks leading nonprofits come up through the ranks of their organizations as teachers or social workers and they don’t have a lot of background in management. Often, they haven’t had any training in how to run an organization or work with a board of directors.”
By the time Maryland Nonprofits completed the planning and launched the Standards for Excellence project in May 1998, almost two years had passed since the initial retreat and the draft Standards code had gone through nine revisions. The end product of these deliberations is an exhaustive code of best practices—the Standards for Excellence—that sets forth 55 standards in eight areas of nonprofit management: mission and program, governing body, conflict of interest, human resources, financial and legal, openness, fundraising and public affairs/ public policy.
For each area, the code lays out a series of benchmarks applicable to any nonprofit, regardless of its size or mission. Under “mission and program,” for instance, the code requires nonprofits to prepare mission statements and update them regularly; conduct ongoing evaluations to assess their progress; and adhere to professional standards in providing services, honoring confidentiality and handling grievances. Under “conflict of interest,” it requires a written policy mandating disclosure of potential conflicts and independent reviews of potential conflicts by uninvolved board members. In combination, the Standards code provides a detailed blueprint for how a well-managed and responsibly governed nonprofit organization should operate.