Peer review nonprofits - a proposal

How often have you heard the complaint "There are too many nonprofits?" This is one of those issues - like politics and religion - that can be so divisive that you don't want to talk about it with certain relatives at certain holiday meals.

Is it true? Those who think it is say things like this, "In 1975 there were 220,000 organizations filing 990 forms with the IRS; in 1995 there were more than 1.2 million; and in 2005 there were more than 1.8 million." Ironically, the creation of new nonprofits is one place where growth in numbers is often met with derision, whereas growth in other enterprises is touted as a sign of progress and societal health.

But how are those numbers calculated, how many of those organizations are functioning past their filing, how do those numbers compare to populations and needs? How would we know if more is too many? Isn't it really a question of "Do we have an adequate set of supports, service providers, and enterprises producing and distributing social, environmental, and cultural goods to meet the needs?" This is a question which has meaning mostly at local levels - it doesn't help if we have "enough" museums or "enough" shelters for abused children if they're located in places that can't be reached by those who need them. In other words, the question of "too many" also needs to consider "to do what and for whom?"

Nonprofitmapping is one initiative that is trying to get better information on the number and distribution of nonprofit organizations. I've heard some folks talk excitedly about the possibility that the economic crisis will winnow the number of nonprofits, though the assumptions of efficient markets, accurate data on impact, and rational donor behavior that drive these expectations are tenuous at best, in my opinion.

For me, the question that really matters is a combination of the above:

"Do we have the right number of nonprofits to provide and distribute the social, environmental and public goods we need to those who need them?"**
This more complicated question gives us an opportunity to think about how we decide how many we need.
Which gives us the opportunity to focus our attention on how we get nonprofits. I know there is some research underway - soon to be public - about the approval rates of 501c3 applications. When this research is released - regardless of its findings - it will no doubt further fuel the discussion about "too many."

I want to take this moment to look not at the outcome of the process for approving nonprofits - that just drives us back to the "enough or too many" question. I want us to look at the how part of the equation. If we presume, for the sake of argument, that we need nonprofits to produce and distribute public goods that are not adequately provided by markets or government, shouldn't the public have some say in how we allocate this tax privileged organizational status? Right now, the tax exempt status that 501c3 approval designates is decided by professionals within the IRS. They rule on regulatory fit, not community need. There has not been, to-date, a viable way for these professionals to consider community need.

These IRS professionals have a federal government employee peer group with a similar problem, patent officers. The US Patent Office is also charged with ruling on the adequacy of public applications for a federally granted privilege - patent protection. In 2009 the US Patent Office began an experiment - peer to patent. This experiment uses 21st century crowdsourcing technologies to bring the public interest into work with the expertise of the patent office. Community reviewers - who both know and have a vested interest in the areas of invention - provide insight and information to the patent office, vastly increasing the breadth of the officer's expertise. There are checks and balances built in to maximize the wisdom of the crowd and the specificity of a patent officer's expertise.

Would something like Peer-to-Patent make sense for the 501c3 approval process? Could it provide a means of factoring in community need and existing community resources to approval decisions? Where would it be subject to abuse and where do the pitfalls lie? What expertise and data would be needed to strengthen a system that might match regulatory reviewers with community-based practitioners?

I'm thinking out loud and in public. You may well hate this idea. Go ahead - please tell me why (but no need to be nasty about it). What problems, if any, might it solve? What problems would it cause? What vested interests does it threaten? What benefits might it provide, and at what increased (decreased?) cost?


**For simplicity's sake in this blog post I am deliberately leaving out the discussion of other enterprise forms that can provide and distribute social, environmental and public goods we need to those who need them. These include social enterprises, social businesses, public agencies and informal networks. This oversimplification is itself, I realize, problematic.



21 comments:

Deyan Vitanov said...

Very interesting post Lucy, thanks! Personally, I am all in favor of uncovering more hard data that can inform decision making, so I look forward to seeing the results of this new initiative.

When it comes to the peer approval process, that is a very unorthodox idea and potentially very appealing. However, how would it solve the fundamental challenges that the philanthropic community faces such as lack of accountability due to lack of transparency and clear performance measures? Because such a new mechanism would only work at the first stage (i.e. approval), how would that solve the inefficiencies?

Adin said...

Wow, what an interesting idea. At first blush, I would support any idea that would speed up the process for nonprofit tax determination. That said, I can see the challenges already in the idea: who would serve as the peers, what would be the selection process and vetting, what would be the minimum set of qualifications for a peer, how do you avoid conflicts of interest, etc.

-Adin

Brian said...

I am definitely in the camp that believes there are too many nonprofit organizations. And I agree that we need to find a system, or methodology, for identifying which nonprofits are needed, serving a critical public need, doing a good job, and similar. There are, in my mind, two important elements to consider:

First, as you noted, is the consideration given to the approval process and the potential for a peer network to provide the appropriate consideration. I actually don't think that is enough. The nonprofit community is a pretty tight knit group, a group of people sharing values and experiences -- often quite isolated from other sectors. Obviously, that will change over time, but my sense is this group, this crowd we are a part of, actually helped to create the mess that is manifested in too many nonprofits, so my confident in the community to be able to self-regulate is quite limited. I think a group needs to be identified, who can provide both broad-based and yet still impartial assessment of prospective 501(c)3 applications, but also the ongoing performance of nonprofit groups so that they may retain their status, etc. We need an audit. We need a four-star group - probably organized regionally (think of the federal court system perhaps as a starting place for the reach/organization) - of people who can offer perspective and judgment, and we need public accountability to ensure that all run smoothly (note: the peer/community can help with this last part, the transparency and accountability piece).

Second, we need some guidance and direction as to what needs actually must be addressed - and possibly even how. We need someone, or some group, or some thing to define the need, and frame the marketplace. We cannot let the individual nonprofits, the well-meaning and highly motivated people shape the sector. The innovation must still come from the bottom up. The creativity and effort, resources and focus must still come from the community. But we need top-down, from the top, leadership to help guide and focus the sector so that real, meaningful, measurable progress can be made in addressing significant social issues -- something that you are hard pressed to find today.

Just thinking out loud. Great question as usual.

Goopz said...

UNICEF Canada is being quite innovative by positioning itself with social media to spread their initiatives and events.

For their Gifts of Magic initiative, they've taken to Facebook and Twitter to spread the word about their charitable gift giving alternatives.

Hildy Gottlieb said...

Bravo and thank you, Lucy.

mashenka@dc said...

Lucy,

The Philippines has a model like this--the Philippines Council on Nonprofit Certification (www.pcnc.com.ph) is an NGO body that has the right to determine the Philippine equivalent of the 501c3 status. They issue rulings which are valid for shorter or longer amounts of time depending on how confident they feel in the capacity of the organization they just reviewed. I joined them on a review (it was a renewal) once--a full day onsite review carried out by PCNC members--members have to volunteer a couple of days a year for this. It's been rocky at times, but I think it's a great model and well worth studying.

Allison Fine said...

This is a fascinating idea, Lucy. I'll match your questions with a few more, but please note that I am very enthusiastic about this idea and think that Peer-to-Patent is a terrific model for nonprofits. Here are my questions:

I wonder what the criteria would be for crowdsourcing nonprofit approval?

Who would be the best people to provide this input? In particular, I wonder about the need for expertise about a local community f to assess the need of a local nonprofit?

What about extending the model for nonprofit renewal of their tax exempt status? There is the public finance test to ensure that organizations are not controlled too strongly by a particular person or entity. But these criteria are never reviewed to see if organizations really have broad, public support. And could this renewal also reconcile the gap that develops between an organization's original, proposed mission and the mission creep that so often happens.

Fascinating idea, Lucy, keep going!

Allison

NurtureGirl said...

Really appreciate this post Lucy. And, I am also hearing that existing nonprofits would be processed too? I am not sure what assessing the dynamic needs of a community - and the overlaps of city, county, region, state, etc. are here. And it would be an interesting and useful thing to consider.

Answering the question: "Do we have the right number of nonprofits to provide and distribute the social, environmental and public goods we need to those who need them?"seems useful. And, I am less concerned with the count of the nonprofits that the right "fit" or ecosystem of them. Does that make sense?

Sean Stannard-Stockton said...

Lucy,
I think the peer review concept has a lot of merit. But I would be worried to see the process used to determine application approval. Many entrepreneurs are told that their ideas are crazy and won't work. Setting up peer review at the approval step would seem to require that all new startup embrace group think as a matter of course!

What if instead the peer review process was used to issue a "certification"? If the brand of this certification was strong enough, it could drive funding to peer certified nonprofits and away from those who don't qualify. But it seems that startups should at least have a chance to prove themselves before being told their idea won't work!

ntenhross said...

Lucy -

As usual - you're tackling tough topics that the rest of us might prefer to leave on the table.

Your post reminds me of a little quote I've had taped up next to my desk (through 3 office moves) since 2004 or 2005. When Brian Gallagher took over at United Way, there was a lot of criticism of his remodeling of the UWA model, and specifically, their move to support fewer but more focused local organizations. In an interview with the Chronicle of Philanthropy, he said "The fact is that if positively changing peoples' lives and condition in [their] community was directly correlated to the number of nonprofits in this country, we would have made a hell of a lot more progress over the last 10 years than we did."

But I don't actually take his words to mean that we have TOO MANY nonprofits, rather that we have TOO FEW EFFECTIVE nonprofits.

I don't think the problem is at the inception of the organization. Can you really judge if an organization will be effective before it's had a chance to try? The foundation community fills this role quite a bit already by not choosing to support work they don't believe in. I don't think the IRS needs to get in on that racket too.

I love the peer-review process, though. I think it belongs in the later stages, maybe as part of an annual audit. Even a "vote of confidence" from donors, clients and community peers would give us some idea of the efficacy of the organization while we mature evaluation metrics for the sector.

NurtureGirl said...

I want to take a second to process, if you don't mind, what I am hearing here in sum.
@afine - "I wonder what the criteria would be for crowdsourcing nonprofit approval?"(and what criteria for those folks - be sure to include local) At point of renewal as well as create org.
Jean - more concerned with "fit" than "count"
Deyan - how would it solve inefficiencies, given the point of intervention? and how do we get more info regarding accountability/transparency?
Adin - concern for peer criteria and process
Brian - confidence in the community to be able to self-regulate is quite limited. Agree w/ Alison on both application and renewal.Audit by 4star group - regional. need public accountability which peer group can help with. "We need some guidance and direction as to what needs actually must be addressed - and possibly even how." I think I am hearing: Vision/big picture from top, creativity from bottom?
Sean - concerned peer review in app process cuts back on innovation. Suggest peer-review "certification" instead.
Holly Issue is less count and more effectiveness. Intervention point is not conception. Prefer annual audit or vote of confidence.

So I think what I am hearing is that the issues we agree are effectiveness, transparency, and accountability. Some of the issue of effectiveness has to do with - while we may share a cohesive vision of a better world - we have many different ideas about how to do that and they don't fit like puzzle pieces together. Transparency then comes up as an issue because if we can't see what it is we can't help put the pieces together better. And accountability has to do with creating feedback loops to make it all work better.

Where does peer-review come in? I hear here a solid yes to peer review - although some care over how that works. Peer review can stifle creativity, but can be valuable for accountability.

Personally I love the idea of an audit/assessment/certification. And many of the comments here are by people who are well qualified as thinkers to create such a thing and have the necessary influence. Thanks all. Where to from here?

David Lynn said...

Lucy -

Great concept, I'm a huge fan of crowdsourcing. However, considering we already essentially crowdsource non-profits with our donations, I think the important facet of this concept is whether you can provide mechanisms to effectively peer-review at any point in the process. Currently, the donation model is not an efficient market, as the dollars do not necessarily flow to the "best" organizations, and the "poor" ones don't disappear. If you can find a better way to rate effectiveness through a crowdsource model, then you've created a phenomenal model.

There is one nugget in your post that I would use to counter Sean's argument, and perhaps bring it back to what I read as your original theory: if the peer-review is used to assess the need, not the solution, then it has merit in changing the IRS process. If the crowd is trying to answer "Is there a homeless population that is underserved and therefore there is need for another homeless agency", then there is merit; if they are trying to answer "will this new homeless agency be effective", then we may miss new ideas and learning processes as Sean pointed out.

Lucy Bernholz said...

Thanks all for taking this idea and running with it. My original idea - and that's all it is (not an initiative or anything larger at this point) was to use the power of crowdsourcing to help assess need (as David points out) and current supply as peer to patent addresses. Rather than inhibit innovation, the peer-to-patent process, which is this is modeled on, is actually designed to point out where a need is already being met (or an innovation already exists). If this worked in a similar way, it could do a couple of things:

- pre-assess the market need and capacity to support an organization in ways that the current incorporation process simply doesn't do nor require. All you need is 3 friends who will sign on as board members and you're in business

- by using community resources from other communities - in other words, job development experts from regions outside of yours - you might actually build a network that shares ideas at the front end, get decent expertise, and limit (to some degree) the conflict of interest role

- crowdsourced market assessment and supply doesn't cover all the bases, but it adds a potentially viable way of folding this information into the incorporation process managed by IRS professionals

- I'm not sure it does anything to address organizational efficiency though ideally it might address regional system efficiencies.

- As for certification of nonprofits, that is not something I'd been thinking of - thrilled to hear of the Phillipines experiment, thanks Mari.

- Seems like crowdsourced information about supply and demand by sector and region is a ripe place to focus attention. Sort of a Great Nonprofits with the focus on the social needs and support system, rather than individual organizations....

- As for transparency, you could default that right into the process, after all we're talking about public input on public-serving organizations.....

I love how so many people have responded to this, and thanks NurtureGirl for drawing together some themes.

Lucy

Tutor Mentor Connections said...

Mapping can be a huge asset in understanding if there are enough, or too many, non profits. If a service is needed in many places, then those providing that type of service can be collected in a database, and maps can be made to show where they are, upon overlays showing where they are needed.

I demonstrate such a use of maps at http://mappingforjustice.blogspot.com

Marion Conway said...

Lucy, What a great conversation you started. I know a little about patents because my husband has about 30 of them. By the time a company (Usually its a company) applies for a patent a tremendous amount of work and documentation has been completed. The main purpose of getting the patent is to "protect" the invention rights. The patent office is charged with two things 1) making sure it doesn't copy or infringe on an existing patent and 2) that it is patentable. Both of these comments hold parallels for the 501c application process but there are differences. There can be many competing nonprofits (I know Hildy hates that word but it is the reality) - no one has exclusive rights. Should an organization be denied the right to be a nonprofit because there are other organizations offering the same services? In my work I have interviewed homeless people. They can tell you which shelter has better food, is safer, you can take a shower on Tuesday, and the staff treats you respectfully. They make choices. No place is perfect. It's the American way - we have choices! Similar arguments could be made for museums, day care centers, after school programs, etc.

As Sean said, making this judgement up front seems too early. The IRS has taken a giant and courageaous step with the new 990 which just asks a bunch of questions.

I love the idea of peer review for nonprofits. But I also know that locally all the nonprofits provide recommendations for each other for United Way grants. I think it is more cooperative due to necessity than anything else.

But its good to start the conversation. I personally think there are way too many nonprofits and that most very small organizations are not that effective. Some are essentially more small businesses than nonprofits. And some blossom into large, effective, fantastic organizations. How do we predict which it will be and when is the proper point to try to figure that out? Its worth talking about. Maybe there should be a "provisional 501c status for 2 -3 years and then a peer review before the final determination.

I'm looking forward to the rest of the conversation.

Marion

Erinn Andrews said...

What great comments from everyone. The only thing I'd like to add is that Philanthropedia is actually doing this peer-certification to a certain extent (though not peer pre-approval for 501c3 status). We survey experts, who include nonprofit executives, to find out which nonprofits they think are doing the best work in their sector. While the results on our website show the consensus of all experts in the group (including foundation professionals and academics), we are able to sort this data on our end to find out the top list from the nonprofit executives only. And because these folks aren't able to "vote" for their own nonprofit, it does make for an interesting certification/approval process. Happy to share more about this with those who are interested.

@christinasworld said...

So very interesting. A couple of things come to mind that I just thought I'd throw into the thought mix:

I am currently learning about the process of establishing a non-profit in Belgium, and find it a refreshingly different kind of system - anyone can very easily start a non-profit association (it's one of the easiest & cheapest forms of incorporation there is) BUT you have to be in operation for at least two years before you apply for tax exempt status.

http://myphilanthropedia.org/ is interesting, but limited in scope and it's not clear how non-profits can request a review. Another interesting initiative is http://greatnonprofits.org/, which asks people with direct experiences with NPOs to review them online.

As a first step, it might be ambitious to tackle reform of IRS procedures in the USA, but I do think that a peer reviewing process & rating system could be a fabulous addition to the online non-profit space, and doable on an international level.

Keep running with the idea... it has the potential to be a good one, and it seems clear you'd have many allies :-)

Andrew Taylor said...

A provocative and productive post, Lucy. Thanks for diving into the fray with some specific ideas and insights to feed the conversation.

It's also generated some great commentary here, and on the comments to my blog post about your blog post.
http://bit.ly/6pJU9x

Keep the ideas spinning!

@csd70 said...

On moving to my town, I noticed there were a number of groups that helped fight overseas poverty. With help, I gathered 12 of them to ponder what they had in common and whether they might cooperate --on common advocacy, relief or education, as one participant suggested.

There wasn't much interest. They were too busy working on symptoms to address root causes, so they had "no time".

I met with the insightful one and an other a few more times, but the effort seemed too uphill.

Ironic in the light of today's NYT article pointing out the clear linked between developed nation's poverty and climate change treaty difficulties.

Maureen said...

I LOVE this conversation! So many great ideas & perspectives.

When I was an undergrad in Animal Science, we learned that projects wanting to conduct research using live animals had to submit their project to a panel for review. As part of their submittal, they had to show that they had research who else was doing similar work and make the argument that their work was still needed, given what else was out there.

Perhaps a baby step would be making a similar request to groups applying for 501c3 status. Forcing them to show that they have at least surveyed who else in the field is doing similar work and asking them to express why they need to establish a new entity.

Cassie L. said...

The IRS has made it far too easy for folks to obtain non-profit status - and everyone has figured this out!

The owner of a local, struggling web design firm here in Louisville has figured out a creative way to advertise her foundering business: form a non-profit and give her company prominent advertising on every flyer and e-mail as a "donor." It's disgusting what people will do to line their pockets. The IRS needs to crack down on this nonsense.