Letting the Humanitarian Sector Lead

Harvard Business Review: Stop Giving Donors What You Think They Want


The Harvard Business Review reposted an excellent article from Dan Pallota's blog, in which he pointed out the importance of letting organizations in the non-profit sector decide their operational procedures. The relationship between these organizations and their donors is markedly different from that of profit-making companies and public consumers. Nonetheless, given that donations are scarce resources that provide little positive impact to the lives of the donors themselves, third sector organizations have had to adopt the "competitive market perspective" with regards to funding. So we see that in order to appease these donors, many of them have gone so far as to alter their operations or even shed their core values based on what they believe donors would want. Although increased external stakeholdership and monitoring technically increases a company efficiency, for the third sector, this results in the lowering of the organization's true potential and the loss of welfare to their target clientele.


In most private companies in the market whose investors and stakeholders also play an influential role in deciding the corporations' targets and operations, final decisions are made from a small spectrum of options, largely from an economic point of view e.g. profit maximization, increased market share etc. In the event of uncertainty with regards to what investors might want, top-level executives can seek refuge by taking these considerations into mind when choosing the next steps. However, things are rarely this clear-cut in the non-profit sector, with three key differences.


Firstly, although donors have a say in non-profit organizations' missions, targets and procedures, their money does not return them dividends like private shares do. They are therefore more irked by high staff salaries and short-term operational failures, especially since it fosters the feeling of "investment wastage".


Secondly, the goal of a profit-maximizing corporation is market survival, and that is achieved by prioritizing long term economic goals such as long-run profits, which can be benchmarked and calculated. Non-profits however place emphasis on moral goals such as maximizing client welfare, results that are very much intangible and open to debate.


Finally, the majority of private investors are either employees from the companies themselves, industry experts, or people who did the transaction via knowledgeable middle-men. In other words, they are informed investors, who know about the industry and how it goes. Non-profits have to labor to provide industry information to their donors, many of whom have little to no relevant experience.


Instead of competing for donors' attention and short-term funding by succumbing to their assumed desires, nonprofits should stop thinking about how to cut overheads and instead focus on results. A successful nonprofit is one who attracts funding by showing donors what it needs to achieve its goals, even if it means publicly announcing hard truths when requests are not met. Donors on the other hand, should consider the positive impact of a nonprofit before making a decision to fund it or not, eventually weeding out the inefficient and ineffective ones.

Egypt's Economic Apartheid

Waiting in line for bread in Cairo. Picture courtesy of the Wall Street Journal.

Wall Street Journal: Egypt's Economic Apartheid

The protests in Egypt have been grabbing the headlines over recent weeks, and the strategic importance as well as cultural influence of the country towards the Middle East and Africa have led academics, journalists and government officials to speculate on the root cause behind these protests. The authoritarian leaders in the region will be especially keen to pinpoint the root causes that culminated in the street protests that ousted Tunisian President Zine el Abidine Ben Ali, and which look set to kick out President Hosni Mubarak as well.

Demonstrators interviewed by reporters have repeatedly made calls for democratic rule, freedom of speech and the ouster of corrupted officials. This is not a root cause, but a verbalization of globally recognized language and keywords to gain support from all angles. It is also the language of opposition that is clearly defiant and contrary towards Mubarak's unambiguously authoritarian leadership.

Journalists and activists have been quick to point out the widespread use of Twitter and Facebook to communicate ideas and emotions, in addition to the oft-cited power of traditional media publications. This is not a root cause either, but simply (leaderless or else easily blamed) platforms that have provided means for the local populace to gather together and shape experiences and possibly, consensus on next-action steps.

Think tanks have taken on a more socio-economic perspective, citing internal causes such as high unemployment rates among youths, status marginalization and abuse from local security forces. Although such propositions are certainly more accurate than the above two ideas in terms of pinpointing root causes behind the protests, they are vague, lack depth, and are based on models that can be almost immediately replicated on almost any social movement outside of the Western world.

In the above-featured news article written by Hernando de Soto for the Wall Street Journal, the author has gone one step deeper in search for a more specific, locally-based reason behind the protests. Recollecting data from a policy report more than six years ago, he noted that the lack of legal recognition behind property ownership has spurred extralegal entrepreneurship, developing an economic class whose capital is "dead" i.e. "property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals". I would add that this creates anxiety among investors, and limit expansion not just for economic reasons but most certainly psychological as well.

Corrupted politicians will vote against any policy action to create an open legal system as it goes directly against the interest of land owners, many of whom wield great influence in the government. With this assumption, it would not be difficult to imagine why it has been the police who have been the most hostile towards the demonstrators. Such laws have given much flexibility and control to the government, who in the drive to develop the local economy, has been acting as a gatekeeper (and bribe collector too) in deciding which corporations enter, stay, or get expelled.

Legal recognition means that tenants can hold landowners to their written contracts, reducing tenants' anxieties and giving them assurance behind the needed fixed capital for business planning and projection purposes. Eliminating poverty in many countries through entrepreneur-based self-sufficiency requires such basic laws. The presence of such laws and rules allow for strong investment planning, labor management, resource control, and eventually expansion and economic profits. On the flip side however, we see the ghost of Karl Marx lingering behind the shadows, as it is also such laws and rules that firmly entrench the underclass in developed economies, ever since the gradual elimination of any language to oppose property laws that do not also undermine contemporary democratic values.