Up next on booktv after words with guest host ken berger. This week former ceo of National Public radio ken sterns and his book with charity for all why charities are failing and a better way to give. In it mr. Stern explores what he calls the unaccountable world of u. S. Charities and how they are managed. This program is about an hour. Host hi and its a pleasure to meet you and i must say was a pleasure to read your book. Charity navigator really is something that i referred to with colleagues as the battle to the soul of the nonprofit. I commend you for taking it on and i think that of the numerous books i have read youve got some special insights there. In fact that is my first question for you. Over the past year, i want to give you a list of some of the books that have come out. Giving 2. 0, do more than give, the art of giving. Give smart. First i want to commend you for not having given the title this time but how would you differentiate this book from some of the others that i have just mentioned . Guest first of all thank you for having me on the show and let me first say i think i will steal the phrase battle for the soul from you. Its quite a good one. Im not entirely familiar with all the books you have mentioned. I think the fact that a lot of folks have been written about the charitable set to reflects the people realize it or not its enormously significant to her. 1. 1 million charities and 1. 5 chilean dollars in revenue and all the concerns about education for our young and help for old and young, Scientific Research and everything that goes into a great country. It doesnt surprise me a lot of people focus their time and energy on the charitable sector. Where i think my book differs from those that have come before is trying to understand how charities and need to be more effective and the market pressures and the things that need to change in order for us to have the charitable sector that we all want. Host great. I definitely think that your ability to articulate the problem and take the problem that we face in normandy and the serious nature is exceptional and that does differentiate from some of these other books. You know you start early enough in the book discussing the American Red Cross and i think doing a good job of dissecting some of the serious problems. You make the following statements. You say when even the highest revenue chair the which is by the way around 3 billion a year in the country is bound together by rubber band n. Tape it is a sign of her found misunderstanding of how to build effective charity. The question that i have for you as i read that is if the American Red Cross is not managing its performance well to ensure that its efficient its efficient and effective in getting good results, who is going to be able to achieve that and bring it to scale and what are your thoughts on that . Guest the problem with the red cross and theres a lot in that question i could go on but let me try to get to the red cross challenge which is how people, the challenge is not in the national cost. Its how people receive funds. I think of the red cross essentially as a job and enormous pressure and crisis to get lifesaving critical and lots of supplies from one place to the other and to marshal up people who are not professional and working fulltime. Its an enormous challenge. Think about the other institutions that have similar challenges that are really the best like fedex and mom are in the u. S. Military. They put billions of dollars into their infrastructure. The red cross puts if they are lucky singledigit millions because the funding comes a moment of crisis when the dilution of money half a billion dollars will come in all really to help the public and not the next big to them. In order for the red cross to understand the challenges around around [inaudible] host . You also think that in addition to those structural challenges there is also the question of leadership, because if you are 3 billiondollar operation and if you are passionately committed to being as effective and result oriented as possible in whatever ways that you can marshal resources would be our first priority, so as not also some responsibility for the organization . Absolutely. One of the stories to tell, in the book i tell about the American Red Cross starts with the story of her and dean healy who back in around 2001 was the ceo of the American Red Cross and she ran into the exact challenges we are talking about during 9 11. She ran into the problem that the American Red Cross could not respond in a timely fashion to the challenges of 9 11 and the pentagon bombing was within miles miles of the 24hour headquarters and 24hour Crisis Center and they still couldnt get there on time. She said we need to rebuild the infrastructure of the American Red Cross and she actually had an opportunity money poured in and a half a billion dollars help the victims of 9 11 and his awfulness 9 11 was wrote the red cross does in terms of assistance to the dems there is a lot of money left over and she said i cant help the victims of 9 11 anymore but i can help the next victim. It was a public flogging in the environment because the way people perceive their donations and what they wanted. As you know is often called the rescue. Its hard for me to imagine for her desire to do that, she lost her job. Of course thats a lesson to the future leadership of the red cross. Host you know i think we see a lot and Charity Navigator of charities that will do solicitations on their web sites and then when you follow the money you see something very different and i think one of the things that donors often get upset about is that they are being told this is going to occur but you have to redefine print to realize why its going to occur. I still maintain and i agree with you about the structural challenges that we face but i do think that the Organization Needs to have outspoken perspectives on how its a battle for the soul and its critically important for us for the survival of people to build the right systems. I hear what you are saying. You know if i was to identify the one thing that has the most concerning the book it was wondering from our own experience, wondering if you had a chance to fact check some of the things that they had indicated to you. Case in point you are talking about organizations with the outside reputations and you had asked for information that claimed to be effective and datadriven but they were stonewalled by the organization. Actually i met with the harlem childrens zone enough than for information and i havent encountered that kind of stonewalling and im wondering did you reach out to harlem childrens zone or some of these other organizations to fact check this with what people were telling you and what their side of the story was . Guest i talk to a lot of people through the course of the book. You let let me give you the context of the story and one of the other ways that my book is different is its a story driven narrative. It tells larger truths to experiences as individual players as individual players and mature oral field and one of the stories i told was what i called creation story. Its an organization i admire here in new york city and at was founded i to refugees from the hedge fund industry. Two young guys who when they were added organization bridge spanned note. The name i forget at the moment. They were doing well and they wanted to make charitable contributions but they wanted a private skill set that they had learned during the time of the hedge fund in analyzing charities. Which led to these extraordinary and difficult things because they went to these charities to find the type of information they needed. Then they often didnt find it there and often they cant find it there and they have built upon that and said okay we are researchers and we will go to the charities ourselves. Often times the charities were unwilling to show the data. Their story that let them to a Great Organization get well so through their eyes and i told the story which i think speaks to the larger truth which is charities are often not transparent but when they are they dont dont know whether their success or they are successor not because they have invested the research and data to know that. Host let me take a different tack. You mentioned Market Mechanisms are missing for charities and then i quote you, funders, the true customers of charitable organizations are generally in different dimensions. I have a problem with that statement but my question to you is shouldnt beneficiaries or clients be the true customers of charities and not the funders . Guest absolutely, no question about it. If i suggested otherwise in the book, ultimately my experience is in my personal experience is donors often evaluate charities through their own experiences with those charities as opposed to is the question is are these charities serving the ultimate stakeholders well and looking at it through the eyes of the services they provide. I think challenges that often stakeholders feel voiceless because they are not the providers of the money and this is not personally a critique of the evil working for the charities. They are victims, they are subject to the same Market Mechanisms that anyone is and they listen to their donors and their source of revenue whether they are government donors are individual donors or foundation owners and donors. Host one of the movements to monitor the performance of charities is a Movement Towards what has been called constituent voice beneficiary feedback as a tool to measure results and to get that voice that is missing. I didnt hear anything about that in your book. What are your thoughts on beneficiary feedback as a tool to measure results . Guest i guess i would say that i am prensa play a proponent of evidencebased research of which the voice might have a part in it but the charities that i admire the most were those who used statistically significant approaches to try to understand whether regardless of the feedback or datadriven perspective doing well or not doing well. The more organizations i wrote about, the partnership, the village region africa are those that are heavily in data and less and some of the softer feedback groups. Host are you suggesting that in the fishery feedback is a softer feedback loop and not as valuable as other data . Guest i think its hard to say and gross generalizations. Which i think is one of the reasons its often challenging for charities to come up with the right tools but i do think theres a hierarchy of tools that i think that starts with quantitative data that looks at the effectiveness or not to establish standards of charity services. I think Everything Else is secondary to those types of measures to the sense thats possible. Host to change the subject again on you. There are number of things in the book and this is one of the things you mentioned or often than almost anything else, the observation that 99. 5 of Charity Applications are approved by the irs and you note and i quote more and more charities compete for a finite set of dollars unquote and you call at the spaghetti factory in one of the chapters of your book. One of my favorite lines in the book, you Mention Organization called the grand canyon sisters of perpetual indulgence and i would add that to the ghostbusters and the nudist colonies and on and on better incorporated as charities and the question of why couldnt this be done go are there not Market Mechanisms so if they want to do that do we need to form a charity to do those sorts of things . But i digress. The key question i have for you is from our work, we observe that there is a little known fact that the other end of the spectrum. When you look at the Nonprofit Sector as a whole, there is the 1 problem. The occupy wall Street Movement that said 43 of revenue goes to 1 of the population. In the charitable or 86 , twice as much of the revenues in the sector goes to 1 of the charities and in fact, i actually think that this notion that there are too Many Charities and we are forming to Many Charities in essence is a red herring because the reality is most of those teenyweeny Charities Get like 4 of the revenue goes to Something Like 60 of the charities and that is really not the main event. The main event which also talk about are these giants and that i think you also mentioned that like in 40 years theres been virtually no change of the Largest Organizations. So dont you think the problem is not so much the proliferation of these teeny organizations that really are going to draw much revenue but isnt the bigger problem massive, massive charities that may be effective at marketing themselves but very poor at really showing results . Would you agree with me that that is the bigger problem . Guest i would agree and i think its part and parcel of the overarching problem. I think they are all part of the failure so we all know from in my Case Economics in college one of the great things about the forprofit free marketplace is this notion of people with great ideas when and people with outdated ideas that no longer work loose. You mentioned before that the top if you look at the fortune 500 from 40 years ago the ltvs, they are all gone replaced by apple and google. That is why the American Economy still works. The charitable side does not work because the same organizations are at the top which reflects how people given who they give it to them its often brand names and organizations which blocks away from and thats what theyre trying to get out and i totally agree that is the principle challenge we face. Host if i were to put it into sentences guest i will try. The current state of affairs is he or she who does the best marketing wins and the goal is the organizations that have the best results and helps the most people should win. Guest absolutely. Host lets take it from the other side and talk about Small Charities for a minute. Isnt there an implicit message because when you talk about the innovator they have to reach a certain scale and size typicalld and performance driven research base, does an organization have to be a certain size to have the capacity to do that . Wouldnt a smaller organization argued that this is an unreasonable requirement . What do you think of that argument . Guest that they should be able to show the effectiveness of their service before they start . They dont have the resources to build a Measurement System and they are doing something on the fly and for us to require this of them is unbelievable. Guest like you i would start top down. I would expect more from the Largest Organization and expect them to provide data and analysis in a transparent way that is not expected of a small organization. Any startup to grow and to prove their case should have time to do that. One idea that i think you know occasionally we should put higher barriers to entry into the system. The system is too big in terms of the numbers of organizations and there needs to be a time and place for these organizations to test ideas but ultimately maybe not in the first year of the second year but they have to show their value where their daughter should be supportive of them. Host another place in the book you note the irs and state oversight is very weak to begin with and all the evidence we see with government funding imploding if anything looking forward the likelihood is there will be even less oversight and enforcement from those agencies. I think you even note the irs, their mission is to get tax revenue and the nonprofits are not core to their mission and then you also note in your book that the Affordable Care act means far less money in the state coffers to care for the uninsured. And you note that attends to measure effectiveness in government usually squashed by politics or special interests. So these are all i think fantastic insights about the challenges, and then as a solution in your solution section you talk about the need to reinvent government. Unfortunately im old enough to remember the attempts by al gore in reinventing Government Back in the day, and it seems like all the evidence from government and all these challenges would argue that the chances for reinventing government anytime soon are slim to nil. Guest am i supposed to disagree with that . Host you recommended it. [laughter] guest sure. So lets put the framework around that in this conversation for our viewers which is as you know, the large as source of funding for the charitable sector by far is the federal government outstripping all other sources by far and all collective individual nations, a half a trillion a year. It is the largest largest sole funder but theres a larger bucket of money that comes from income when you look at the Nonprofit Sector as a whole but is certainly the largest. Guest earned income is not on a transactional aces as the decision to give money to an organization because it is effective in pursuing a public purpose. What i look at my recommend reinventing government to use al gores phrase, i say lets follow the money. Lets find charities are subject to Market Mechanisms and dollars. We should go to the people with the greatest dollars, the greatest outcome and there are some signs i think that the Obama Administration at least thinks that theyre thinking about that. I reference the executive order that came from the office of management and budget last year suggesting there be a higher standard of evidencebased work in terms of the federal grant making procedure. Obama has done the fund for social innovation which is another way of rethinking how government looks at the charitable sector. Another isnt entirely optimistic as you say that raises the focus on energy and t