LM: Professionalism in non-profits: September 29, 2008

Spencer Stuart Perspectives | Professionalism in non-profits

With at least 1.2 mn registered NGOs, there is greater focus today on more systematic, corporate style management………Anjali Bansal

Over the years, the non-profit sector in India has based its strategies on innovativeness in processes primarily driven by the principles of individual entrepreneur-founders or by business family members as part of a philanthropic trust, and with the distinct effort to adopt a non-corporate approach as a means to distinguish itself from the for profit corporate sector.

Today, the sector is experiencing winds of change. India now has at least 1.2 million registered NGOs and the fastest growing segments within this space are microfinance, public health and environment. According to Venture Intelligence, in 2007, venture capitalists invested $50 million (about Rs229 crore) in microfinance activities, compared with virtually nothing the year before.

Thus, as funding and the scale of programmes have grown, there has emerged a focus by boards and donors of non-profits to adopt more systematic, corporate style management with well-defined systems and processes.

Drivers of change

A primary driver of change in this sector has been the globalization of fund-raising by Indian non-profits supported by the need for scale and sustainability. This has been seen across non-profit categories, from institutions such as SKS Microfinance that work towards economic self-reliance and Technoserves rural initiatives to Acumen Funds focus on access to affordable health care to the urban and rural poor.

Another major development, in my experience, is a healthy focus on real double bottom line, which includes development impact and commercial sustainability. We see this specifically with the emergence of social venture funds such as Acumen, Unitus, Bellwether, Blue Orchard, which tap into a socially aware investor base and provide capital for activities to achieve impact while generating cost of capital plus real returns.

The changing nature of donors that are funding non-profits has also been a catalyst of change. Non-resident Indians returning to India are keen to make a difference through the development of their villages, cities, infrastructure and a host of development initiatives.

As a result, development projects are seeing a greater involvement of the general population, in addition to the government, funding agencies and non-profit organizations. The American India Foundation (AIF) is an example of such a partnership, with a focus on elementary education, women empowerment and maternal and child health.

The current generation of successful entrepreneur-turned-philanthropists is also looking to invest hard-earned money and is increasingly looking for rigorous standards of professionalism and accountability in the charities it funds.

Dream A Dream is one such professionally run, registered not-for-profit trust working towards empowering children from vulnerable backgrounds. The same applies for companies investing in community projects under their CSR initiatives or corporate foundations, such as the Infosys Foundation, Bharti Foundation and the Bill and Melinda Gates Foundation, while building their investment strategies. This has translated into a need for non-profits to invest in talent that can deploy accurate financial tools and measurement techniques.

The resultant effects

These developments have had an effect on multiple areas, be it strategy, fund raising, transparency, talent, even compensation.

On strategy:

A primary change has been the expansion of scope and scale. Earlier, other than the government/multilateral agencies, non-profits were local or at the grass-root level restricted in geography and single-issue specific. Now, a large number function as enterprises and have successfully expanded across local and state-level geographic boundaries and issue areas. What is interesting is that these organizations are active in urban and rural areas, simultaneously addressing issues related to health, education, livelihood, gender as well as cleanliness and environment, among others. There is also increased sharing of resources, best practices and learnings, resulting in partnerships aimed at improving efficiencies and scaling up work.

On transparency:

This expansion of scale has made accountability a major focus area. The Michael and Susan Dell Foundation works in close collaboration with grantees and other foundations to support thoughtfully planned, data-driven programmes showing clear paths to achieve lasting transformations in its focus areas. The Dutch Rabobank Foundation is another example of transparency, with two levels of screening for potential partners, with an increased emphasis on quality of portfolio, constant monitoring of quality and return on investment. Reporting standards have improved and long-term fund support is now clearly linked with transparency in functioning.

On talent and compensation:

On the talent front, there has been an increase in the number of well-qualified individuals from the private sector who want to enter more community service-oriented roles. This infusion of business and strategic skills has brought about a sense of professionalism in this previously unorganized sector. This, combined with the need for functional specialists, has increased the opportunities available to people in India and overseas looking for a move from the corporate sector to non-profits. World Vision India, part of a global organization that works with poor communities, employs chartered accountants, former bankers and experts in IT. And salaries, while not comparable with the corporate world, have moved upwards.

On fund raising:

As non-profits grow in size and coverage of issues, one of the critical issues they face is effective fund raising. According to the South Asian Fund Raising Group (SAFRG), the social sector in India raises funds up to $600 million in a year, against the potential to raise more than $10 billion. In comparison, the non-profit sector in the US raises $260 billion each year (from a population of 295 million) and in the UK, $41 billion in a year (from 60 million people). This translates into the need for professional fund raisers.

Many NGOs spend 60-70% of their funds on hiring foreign consultants. Instead, there needs to be a focused approach on creating professionals and technical experts in India, through workshops and specialized courses.

The future:

As the level of professionalism in the non-profit sector increases, we will continue to see strategies focused on improved governance mechanisms, such as the setting up of professional boards, as well as the inclusion of skilled and qualified individuals to run the organizations. As a result, existing and new enterprises will apply strategies to achieve and demonstrate performance as well as improving efficiency and effectiveness. In this scenario, funding will flow in as social entrepreneurs experiment with new models based on a range of individual priorities and their belief in participating in a worthy cause or civic activity.

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