Check out a non-profit and then allow it to function

By Ratna Vishwanathan

IT has been extensively documented  that companies which exhibit socially responsible behaviour tend to  be more successful than companies with an eye solely on profitability. A study published in the Harvard Business Review showed that they provide noticeably higher returns to shareholders. They also earn customer loyalty and, in the long term, brand value and goodwill that extends over generations.

So, it can be safely stated that it is beneficial for companies to consider their commitments to positive behaviour and accountable leadership when formulating their business strategies and policies. It makes sense for them to engage with the social realities within which they operate. It serves them well to adopt the principles of transparency, equity and justice as well as environmental balance, particularly so at a time when the planet is burdened with the weight of our over consumption and depletion of resources

Building a social brand is not always  an outcome of voluntary action or the pressure of public opinion. Often, and in the face of the growing awareness today of responsible consumption, there are regulations which mandate companies to perform responsibly. The Securities Exchange Board of India (SEBI) has, for instance, included Business Responsibility Reporting (BRR) for companies on the National Stock Exchange. The BRR report requires all listed companies to provide voluntary disclosures on their environmental, social and corporate governance performance. This includes information about their operations in relation to corporate governance, human rights, labour, products and services, societal initiatives, impact investments and more.

SEBI expects BRR to strengthen the credibility of the disclosures made by listed companies and ensure that all stakeholders have access to meaningful information about activities, policies and procedures. Such efforts made at a regulatory level are aimed at holding to account companies and their managements. They compel companies to keep taking a close look at themselves.

The 2013 amendment to the Companies Act adds another level of compliance for managements. It makes Corporate Social Responsibility (CSR) mandatory.  Eight Asian economies have government policies requiring companies to engage in CSR but only two countries — Nepal and India — have mandated levels of CSR giving. Being one of the first countries in the world to mandate CSR through legislation should ideally be a good thing. But the giving spirit which needs to underlie philanthropy cannot be forced simply by a mandate. The forging of partnerships to create public good needs to be infused with trust and the spirit of co-creation. If it ends up being a box that gets ticked to comply with existing and often inconsistent and changing regulation, it becomes a self-defeating exercise.

Corporations today have formally appointed CSR managers, sustainability chiefs and, of course, CSR Committees at the level of top management. But to move the needle from compliance to actual performance, there is a need for ground-level engagement and project implementation. This brings in the need for ‘boots on ground’. Corporations need to partner with not-for-profit entities working with communities because they invariably lack the bandwidth to engage at that level.

Non-profit organizations are critical as enablers for corporate entities  to connect with communities  and be the last mile agencies for social impact interventions. Non-profits bring domain knowledge, community engagement and an understanding of local nuances to the table and, most importantly, are trusted by the communities they work with.

But this seemingly natural partnership between non-profits and companies is an uneasy one with an underlying lack of understanding and trust. A common thread that runs through discussions about grants and donations is the level of control that the giving agency exerts on the recipient of these funds. Donors and funders often want line-item-wise details of how funds will be spent and in the event of any funds being left over at the end of the year under a particular head, they cannot be moved to other heads of expenditure without the specific approval of the donor. This does not behove diligence but rather illustrates the trust deficit rife in the realm of philanthropic giving.

There is a history to this suspicion. With more than 3.8 million registered charities in this country, there are those that have in the past misused or siphoned off funds received from donors. But rotten apples are not specific to the not-for-profit sector and to paint everyone with the same brush is probably not warranted. Philanthropy has to be in spirit.

The expectations companies have of non-profits in terms of compliance to processes and procedures are often difficult to meet as smaller organizations allocate priority and resources to programme delivery. They are often cash strapped and do not have the bandwidth for extensive and complicated reporting and compliance processes.  On their part, not-for-profit organizations harbour distrust of corporate intentions, although they need to be supported by CSR funding to carry out their work. This trust deficit between partners often leads to conflict and misunderstanding which weakens outcomes and impinges on impact. 

Since this is a relationship that aims to strengthen social impact and build the capacity of those less privileged, there is a need to address this trust deficit. The spirit of giving has to translate into trust. There are a number of very small organizations who do excellent work at the grassroots. In today’s environment with regulation not allowing for sub-grants, the environment encourages direct giving to smaller non-profits. This poses a challenge in that small entities do not have the wherewithal or bandwidth to comply with complex grant reporting requirements and are slowly drying up due to the paucity of funds.

It is these small entities that played a significant role in supporting communities and families during the unprecedented tragedy in the wake of the COVID pandemic. Ironically, The Doing Good Index 2022 shows that during the pandemic 95 percent of not-for-profit entities directly supported communities but 61 percent reported a decrease in donors (India Development Review,  September 2022, "Building Trust in the Social Sector").

As part of programme design, donors/funders can build in components that strengthen systems and processes. There is a need to build the capacity of smaller, ground- level  non-profits as part of the social responsibility mandate of companies. Micromanaging non-profits or being patronizing towards them does not build long-term partnerships and eventually there is fatigue on both sides.

Oversight by funders is definitely warranted. But it can be exercised in a nuanced and mutually respectful way.  Once it is agreed in principle that a funder will support the activities of a particular charity, a one-time and stringent due diligence of the organization should set the tone. But, after that, trust needs to be vested in the implementing agency. The larger strategy should be signed off and once done flexibility needs to rest with the delivering agency on the appropriate use of funds within the larger parameters agreed to rather than micromanaging every last line item.

The organization on the ground is best suited to prioritize activities. Defining micro-level activities takes away the flexibility and agility an organization needs to deliver efficiently. Having a shoe box full of receipts approach is helpful to no one and is highly transactional in nature. On the other hand, in a country like ours, religious giving rarely warrants questions as the giver does so in good faith.

Change is coming in, but gradually. Companies are beginning to accept  non-profits as dependable force multipliers of their CSR activities. Non-profits on their part have been increasingly stepping up their accountability by transparently disclosing financial data in the public domain.

Perhaps technology can be leveraged to create more transparency in presenting non-profits and their capabilities to corporate partners. An accelerator which gives visibility to smaller organizations and the work they do after a due diligence process will make fund inflows easier. It will give a much-needed platform for smaller organizations and a level of comfort to donor agencies as there would be a first level of vetting already in place. In an ecosystem that has diverse players and one where each has a defined role there is a need to create mutually supportive frameworks to build and deliver on the much larger agenda of social impact. Building trust is key in the larger interest of addressing inequity. And it is public good finally that has to be served.

 

Ratna Vishwanathan is CEO of Reach To Teach.