News flash: Managing a non-profit organization is real business

After many years of working in a non-profit organization I became convinced that the main difference between for-profit business and non-profit business is in the availability (or lack thereof) of dividends. Plus for-profit companies prefer not to pay dividends and markets pressure corporations to act in stakeholder’s interests (not just shareholder’s) … I leave the math to you.
Given these premises I’m not surprised that Mitchell Baker, CEO of Mozilla Foundation, was paid good money in 2006 (see Mozilla Financial FAQ for a breakdown of her $500,000 salary). Charity Navigator’s FAQ (a site that helps US-based donors evaluate non-profit organizations) comment on non-profit’s CEO salaries:

it is important to consider that it takes a certain level of professionalism to effectively run a charity and charities must offer a competitive salary if they want to attract and retain that level of leadership.

And that’s the important bit. According to Charity Navigator, average salary for a charity CEO is $145,000 per year. That’s peanuts, compared to the $14 million compensation received by the average CEO of a S&P company.

Of course, if you pay peanuts you get monkeys, as my father-in-law says, and you don’t want monkeys running your charity. Mitchell has done a good job at Mozilla Foundation and she deserves recognition and an incentive to keep it up. Not only I don’t see a problem but I hope salaries for non-profit CEOs will get higher to attract the best managers.

The problems start if non-profit CEOs compensation is very high compared to total expenses. Peter Brown, FSF’s Executive Director, received about $70k in 2006 (9% of expenses) while Shari Steele, EFF’s Executive Director, received about $150k in 2005 (5% of expenses). Salaries are proportional to the size of the organization: EFF’s income is $2.7 million, compared to a mere $800k for FSF.

Unfortunately this level of transparency is non-existent in comparable non-profit organizations in Europe. I don’t feel comfortable donating without knowing exactly how my money will be spent in detail, especially regarding compensation for the executives.

4 thoughts on “News flash: Managing a non-profit organization is real business

  1. Penso tu abbia ragione, soprattutto perché suona un po’ strana questa mancanza di trasparenza se paragonata al supposto atteggiamento ‘aperto’ delle organizzazioni che si occupano di FLOSS. Insomma, aperti nel prodotto e chiusi nel bilancio?
    Però penso anche questo: possiamo costringere piccole associazioni culturali magari non riconosciute a fare un bilancio annuale delle loro spese? c’è da chiedersi se ne abbiano le competenze. Io penso che si dovrebbe, in nome della trasparenza e del fatto che non possiamo pretenderlo da alcune e da altre no, ma mi chiedo quante davvero sarebbero in grado di farlo.

    You’re right, also if you compare this lack of transparency with the ‘open’ behavior of the FLOSS organizations.. it sounds a little strange I think.
    But really we should also think about this: can we force a small unofficial cultural association to report a balance sheet every year? I think we should, because of this lack of transparency, but how many of the associations can really afford this rule?

    Like

  2. Marcello: publishing a balance sheet is the best tool to keep the finance under control. If a small non-profit organization can publish a detailed balance sheet, income/expense report and cash flow report with a breakdown of program expenses then it shows the public that it is an organization that takes its mission seriously.

    Every donation is an investment: the donor is betting on the organization to create social value for the whole society in the long run. It’s exactly like buying shares of a public company, investing in the hope that its management will create economic value in the long run for the investors. Would you invest in a company whose books are not visible or poorly maintained?

    Like

  3. I think that transparency is the best way to show ‘good intentions’, even if it is not easy to do. And yes by forcing this process organizations will be also more ‘financially ordered’.
    I understand what you mean. Donations are made for trust, and trust is created with a good use of donations, and the best way to show this good use is with a public balance sheet.
    But also this means to open dialogs with supporters about the use of this money, when is not wasted, and I think that most of these small organizations is scared by this point. When you try to do your best, in a small context and by personal motivations, every critic is a wall to overtake, and the fear that sooner or later you’ll probably give up if these critics (maybe made for gelosy or what else..) become too many, or because of stress, is bigger than the fear to remain without money.
    Anyway, without courage nothing happens, so in the end transparency can be a really useful tool.
    (sorry, maybe I got too philosophic [smile] )

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s