Nonprofit Skin in the Game?

Accountability continues to be an oft-touted but elusive concept for America's Nonprofit Sector. While there are a million reasons why nonprofits should do a better job of "rendering an account for the resources which they have been conferred", there are also a million and one reasons why practitioners claim it can't be done (resources, time, capacity, factors beyond their control, etc.) What if, rather than imposing accountability on all nonprofits, we incentivized nonprofits by creating pools of funding available to those whose executives are not only willing to set and report performance measures, but willing to stand behind those numbers if it meant more support?

This idea occurs to me with notice of Drum Major Institute's next speaker in their "Marketplace of Ideas" series, Senator Hottinger. According to the promo from this well-respected liberal think-tank, Hottinger "sponsored Minnesota's groundbreaking law instituting new standards of transparency and accountability for state and local economic development subsidies. The 1995 law and its subsequent enhancements required that companies who receive public subsidies but fail to reach job creation goals repay the subsidy with interest. The legislation also mandated increased corporate disclosure, wage standards for the jobs created, and public hearings before large subsidies could be granted. The law is credited with recouping millions of dollars in state funds and increasing civic engagement around issues of economic development. After serving sixteen years in the Minnesota State Senate, including a stint as Majority Leader, John Hottinger retired in 2006."

While Hottinger's approach to accountability is punitive, it seems like an idea that could be adapted by grantmakers to reward grantees who articulate, track and achieve their goals. Having worked directly with 10+ community foundations to negotiate performance outcomes with grantees, I know this is no easy process on either side of the table. I also know that as a nonprofit executive, there was no real accountability to temper the goals I might propose to achieve with a grant. As a program officer, I further know that while I would use agency-provided metrics to argue for a grant, there was no process for calling program officers out at the end of a grant if the goals they argued to fund weren't achieved by the grantee.

While I thought the term "skin in the game" was as old as my pop who raised me to be gambler, I did a little research to determine its origin when it popped into mind as I read about the Minnesota legislation. I learned that the term was coined by renowned investor/new mega-philanthropist Warren Buffet to refer to the situation in which high-ranking insiders use their own money to buy stock in the company they are running. Other definitions point to the idea that when one has "skin in the game" they are willing accept a higher rate of pay based on performance that delivers.

I've long been obsessed with mechanisms that might shift the Third Sector funding dynamic from one in which what you do is more important than who you know.

Given the deep entrenchment of that dynamic, we need to spend time thinking about "out of the box" ideas like Hottinger's. At a minimum, it would be a fresh approach for engaging new high-net worth donors, many of whom have "put skin in the game" of corporate endeavors. While the resounding rebuke may be terrifying, I'll ask you gentle readers, what could it hurt?

P.S. If you can't make the DMI event on September 18 at the Harvard Club in NYC, be sure to check back for the Podcast. I sure will.

Susan Herr

Posted at 9:31 AM, Aug 18, 2006 in Accountability | Permalink | Comments (1)


It is not surprising that the man who coined the term for the private sector has now set the greatest example of putting 'skin in the game' in the philanthropic marketplace. Donors put their skin in the game every time they make a charitable donation. The significant difference, however, is that the nonprofit sector doesn't reward donors with appropriate 'returns' on those gifts. To do so requires a disciplined approach to quantifying performance measures, collecting data, and applying analytics to measure progress against goals, which can then be reported out to donors. While some forward-thinking foundations are headed in this direction, the sector needs an infusion of this kind of thinking, and more importantly, this kind of ACTION to make a significant difference. Until then, the system continues to reward old boys networks, instead of entrepreneurial change agents.

Posted by: Caroline Heine