How important is transparency to the donor-nonprofit relationship? Or better yet, what does it mean for a nonprofit to be transparent? Is it wise for a nonprofit to be transparent about activities that might divert attention away from its core vision and message?

Questions like these are incredibly important for nonprofits in today’s world. In fact, it seems like every week we hear about another nonprofit which comes under fire for a “lack of transparency”. This criticism, which can quickly snowball out of control, has been known to doom nonprofits and threaten their very existence. To survive in an age where information is easily accessible and seemingly everywhere, nonprofits are going to need a better understanding of what it means to be transparent. 

Businesses are beginning to understand this. No longer can a business hide certain activities and knowledge from the public eye. Whether it is human rights abuses in Chinese factories, or a poor record of environmental stewardship, businesses are coming to terms with a need to strategically manage the transparency of their organization. It seems however, that nonprofits are not only late to the party, but can only be brought kicking and screaming.

Last week a now famous nonprofit released a 30 minute documentary on YouTube which became an overnight sensation and a social media success story. Created by the nonprofit group, Invisible Children, the video is the largest viral campaign ever to hit YouTube. It was created by filmmaker Jason Russell, and is extremely well done. It does a fantastic job of creating an intriguing story and message. Its call to activism is both inspiring and encouraging. After watching the video, I myself was moved to action against the brutal warlord, Joseph Kony.

However, in addition to all of the popularity and praise, several critics have voiced concerns about the organization. The most troubling, I believe, is the charge about a lack of financial transparency. Several journalists and bloggers have conducted research into the financial activities of Invisible Children and have concluded that although the organization claims to support and aid impoverished children and families in Africa, a large portion of their financial resources have gone towards filmmaking and marketing costs. I recently visited the website of Invisible Children, and I immediately noticed that they are now attempting to address these criticisms by publishing their financial data on the front page of their website. In the organization’s defense, they now clearly state that their primary objective is to raise awareness for the war-torn communities of East and Central Africa in addition to operating programs that are rehabilitative and developmental in scope. I fear however, that due to a lack of a clear message historically, many of their donors assumed that all donations specifically supported the developmental work. 

As I think about this situation in light of my own position within a nonprofit, I struggle to see which side of the issue to support. On one hand, I know that all nonprofits have operating and marketing expenses, which are vital to the organization’s livelihood. And as is commonly known in the nonprofit world, most donors aren’t passionate about their investment going to “keep the lights on”. Often, a nonprofit’s response to this problem is to bury these necessary expenses within the financial statements and publish them on obscure pages of their websites. This can create, however, a ticking time bomb. Donors often feel misled and deceived when this information is finally revealed. I can understand how a donor who supports an organization might be frustrated to learn that a substantial portion of their donation never makes it to their intended project.

So here is the question: What would it look like if non-profits practiced “ultra-transparency”? What if non-profits published every detail about their organizational expense structure and invited donor input and feedback? What if before a donor made a donation to an organization, they were shown in detail how every penny would be spent? And then, what if that donor got regular updates on the project or cause they sponsored? In essence, what if nonprofits afforded every donor the same rights and access as its board members?

I am not sure how the criticism surrounding Invisible Children will play out. It will be interesting to see how problematic their “lack of transparency” will become. I can’t help but wonder if they could have avoided this criticism by publishing their financial information in a transparent way before the video ever went public. I wonder if donors would still feel misled and deceived if they knew everything before ever giving their first donation?

Coincidentally, two nonprofits that have historically done an exceptional job of providing financial transparency are kiva.org and charitywater.org. If you are interested, you can check out their websites to see how they have addressed the issue. 

What do you think? We would love to hear your thoughts and ideas on this immensely important topic.