One of the less-told stories about the financial meltdown is one of particular relevance to nonprofits: how comparative metrics can lead to disastrous decision-making by organizations.
In the last several years, when investment banks compared their performances with that of Lehman Brothers, they found it almost impossible to do as well. To improve performance, they turned up the heat on their managers, product developers and sales teams. "Why don’t our metrics measure up to theirs?" was the demand echoed in countless conference rooms and memos. People lost their jobs and others felt pressured to take riskier and riskier steps.
The same phenomenon occurred within Enron’s competitors. It was impossible to stay competitive with Enron . . . and honest managers lost their jobs and honest companies failed.
When financial metrics are used to compare nonprofits, the results are often as destructive. Two nonprofits, each working with children with disabilities, can show hugely different costs for serving the same number of children. When government agencies, foundations and donors compare financial performance, they may not realize that one is working with upper-income children with dyslexia while the other is working with low-income children with autism. Pressuring the second to improve its financial performance means pressuring it to work with children from higher-income families, and with less severe disabilities.
As easy as it can be to compare two stock prices, it’s almost impossible to compare the performance of, say, two counseling centers, two environmental health rights groups, two mentoring programs, two job training programs. Not only do they work with different people, they work in different communities and settings, and they bring different methodologies and different styles to the work, different sets of assets and liabilities.
As we commented in the last issue of Blue Avocado, if the big financial firms had acted more like nonprofits, they would not be suffering their woes of today. We in community nonprofits must be sure we don’t borrow the destructive and dysfunctional habits of American business along with what is worthwhile.
And. While big disasters affect us all, we can take important steps to protect our organizations from little disasters: we’re very pleased this issue with A Board Member’s Guide to Insurance below. Also in this issue: Rita reminds us about proper handling of political discussions in the office, we look at an 11-year fight that achieved a huge milestone, and we visit an old and a new preschool in Chicago. — Jan Masaoka