Wednesday, December 3, 2014

Sustainability Index for Non-profits

A little company in town called P&G recently updated its Sustainability Guidelines. It sent a reminder to its external business partners and their suppliers to comply with its Sustainability Guideline. Non-compliance means audits and possible discontinuation of future businesses for failure of compliance. P&G’s Sustainability Guidelines is an impressive list of actionable items including strict legal compliance, respecting human rights, respecting child labor and anti-force labor standards, health and safety, wage and hours standards, anti-discrimination practices, environmental standards, collective bargaining standards, anti-corruption standards, privacy standards, and personnel security standards.

 P&G’s Sustainability Guidelines seem to be directed at for-profit entities primarily doing business in other countries but for a non-profit local to P&G’s footprint and receiving annual grants from P&G’s philanthropy efforts, it is worthwhile to think how this will impact the value proposition during the annual grant writing process. Intrinsically, the question of whether the non-profit can measure its own sustainability index and performance intrigued me. Naturally, when the question was presented to me by a non-profit’s board member I jumped at the chance to think this one through.

First, you have to define the measuring criteria in each of the three (3) sustainability categories – social, environmental and economical performance. P&G has done this with its own operations and ecosystem of stakeholders in mind. Their Guidelines are unique to P&G, but the premise is replicable. You just have to follow a process of define, measure, analyze and improve for the relevant factors identified in each of the three categories. It's a bit of work, but it's nothing too complicated.

I.     Social Performance.

The social performance of non-profits is often neglected because most non-profits are mission driven. They are already socially orientated so its leadership and those evaluating these non-profits aren’t looking outside the mission box. But sustainability is more than that, and stopping at the non-profit’s social mission neglects the wider ecosystem in which the non-profit exist. Can the non-profit do more? Can it easily cooperate with another and find synergy? These are often questions not asked. Interestingly, this mentality sets in at later stages of a non-profit’s operation when it has paid staff who are very silo-ed and have accustomed to the “it’s not my job” mentality. For the younger and budding non-profits, this isn’t so much of a problem and I find some of the less established non-profits are more flexible in their ability to collaborate and there are less barriers since they are not so much economically incentivized.

This adaptability often yields interesting results in new venture formations.

So how do you measure a non-profit’s mission in the context of sustainability? Well, you have to look at what that mission is and if it is a durable or an end-goal mission. For example, a charity for curing cancer will cease to exist (likely) when cancer is cured; but a charity that is focused on leadership development will never have an expiration date on its operations. So long as there are people, leaders are to be developed.

You also have to look at its flexibility, in terms of adaptability not only in budgeting but also with respect to innovation—does the non-profit have a process for creating value out of its original ideas and not just fundraising efforts? I find a non-profit with older constituents and larger operation size are less flexible and a non-profit with younger constituents and small operation size are more flexible and tends to be more creative. They can capture new value and can grow very quickly. However, the x-factor in this analysis is whether the non-profit has heart. How passionate is its stakeholders? I find that a lot of passion will transform perceived demographic barriers and make older people creative and adaptable.

Another way to look at a non-profit is through its focus on diversity and inclusion. There are many ways to define diversity and inclusion, but I believe it’s more about diversity of experiences and thoughts, and giving that diversity a voice that really creates value for any organization. Of course skin color or cultural differences naturally manifest into diversity of thoughts and experience, but the really good organizations look beyond skin and try to do something about empowering its minority and often neglected constituents.

It is also a good idea to look out for the lack of diversity and inclusiveness that manifest in unexpected ways. Take organizational structure for example. Most organizations love org-charts and love to tell staff where they fit-in in the grand scheme of things. This leads to exclusion of thoughts in the same way discrimination works against skin color or gender or cultural background. Think about it, your idea is not valued simply because you are working as an administrative assistance and everyone assumes you have nothing to contribute to the new fund raising campaign initiative even though they are targeting exactly your demographic. How does that make you feel?

So there are a number of questions a non-profit, or any organization, can ask: is it diverse and inclusive not just for the sake of appearances, but because the organization really values what everyone has to contribute? Is it putting this to practice and really allow opportunities for the diverse and often minority voice? And finally is it implicitly exclusive (for example, is its mission to serve a particular political party)?

Finally, you can also measure the social performance of a non-profit by the educational impact it has on its stakeholders. Here, you want to examine whether the organization is systematically following a script (donate to disabled veterans) and not really inspiring its stakeholders to be creative and really think of solutions to the social problems it is trying to address; or is it finding a new way of looking at the root problems and finding holistic sensible solutions to really alleviate the problem? Here, you have to think a bit counterintuitively. If you are really just raising funds, then you want the problem to exist so you can sustain your fundraising campaigns. On the other hand, if you are really looking at how to solve a problem then you should be working yourself out of a job. Because by the end of the day, you have solved the problem and your charitable work is no longer needed. But this is only applicable to those non-profits without a durable pro-active mission. A non-durable passive mission is one that aims to solve a problem. Once the problem goes away, then the mission is no longer applicable. It is reactionary. It’s good that we are solving problems, but sustainability is more about anticipating what’s ahead. A durable active mission is one that aims to empower a particular good thing in society. The arts for example; or developing today’s leaders and tomorrow’s communities as one non-profits has it. After all, you will probably never run out of good leaders to develop and good communities to build; I hope we never run out of good art to promote. 

To recap, the social performance of a non-profit can be evaluated by its mission and purpose, by its adaptability and innovative capacity, by its diversity and inclusion, and by its educational and inspirational impact. Under each of the four factors, benefits and barriers can be assigned scores based on subjectivity and although not an entirely accurate science, it does provide a good gauge of how well the non-profit is performing beyond just a mere assessment of its ability to perform its mission.

II.     Environmental Performance.

Following a lazy-man’s assessment, our non-profit isn’t about the environment so this is not applicable to us. Right? Or, we aren’t subject to any environmental laws, so we don’t have to be assessed in this category. Okay? No. Everyone has an environmental impact and any organization can do something about it.

To start, there are three categories under environmental performance we can use to assess a non-profit’s environmental performance standard: conservation, protection, and impact. First, conservation is about reduce, reuse, and recycle. All organizations can be mindful of how they are reusing their material, how they are reducing their carbon footprint, and how they are creatively recycling things they were throwing away. How well does your non-profit manage its resources? How well does your organization communicate needs and surplus?

Protection is about being mindful of making the right choices. If you can order 100 t-shirts from a company overseas (high transportation cost and carbon footprint) and that company uses environmentally unfriendly processes (using harsh chemicals to dye), then do you really need to save that five dollars per t-shirt? An even better question, why are you buying the t-shirt in the first place? Is it because your constituents really need it or is it because that’s just what everyone else is doing?

Finally, let’s talk about impact. Your non-profit has a lot of brand power for your own advocacy work. But are you leveraging that brand power to co-brand environmental initiatives? Are you making the connection of your brand recognition with any environmental problems that you’ve turned a blind eye? For example, if your mission is to alleviate poverty are you also looking at how the poorest are often living next to the most polluted places and have higher health care costs because of this? After you have connected the dots and recognized how closely connected you are to the environmental impact you can make, are you leveraging your organization’s social diffusion power to really make a stink about your new found knowledge?

III.     Economic Performance.

This is a small category because non-profits by definition are not focused on just making the single profitable bottom line. Non-profits are mission driven to begin with and is at a lower risk level for lack of good governance and corporate social responsibility.

What does need to be addressed with non-profits are often their cost of inefficiencies both in terms of its operations and its administrations. It’s also important to look at its budgeting (how good is the organization at predicting fluctuations in its revenue cycles and how good is it at reducing ineffective cost items and protocols). Additionally, it’s important to examine whether the non-profit is looking at opportunities and stakeholder involvement. Is it getting its constituents involved in the innovation process to capture new value that has otherwise been neglected?



These are just the starting points. I can go on for days. . .

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