The question of, why couldnt this be done for are there not market mechanism. But if they want to do that, do we need to form a charity . But i digress. The key question i have for you is, from our work, we observed that theres a little known fact at the other end of the spectrum, when you look to Nonprofit Sector as a whole, theres the one percent problem. The occupy wall street is upset that 43 of the profits go to 1 of the sector. I actually think thats notion that there are too Many Charities is a red herring. Because the reality is that most of those teeny weany little Charities Get minuscule they get 4 of the revenue to Something Like 60 of the charities. Theyre minuscule. Thats really not the main event. The main event, which you also talk about, are these giants, and that i think you also mentioned in 40 years, theres been virtually know no change in the largest organization. So its not to the proliferation of smile organizations but isnt the bigger problem massive, massive charities that may be very effective at marketing themselves but very poor at really showing results. Would you agree with me thats a bigger problem . Guest i would agree. Theyre actually part and parcel of the same overarching problem. I think theyre all part of the failure of creative instruction. So we all know from in my case, my economics in college, 122 years ago, that one of the great things about the forprofit, the Free Enterprise market place, this motion of construction. Peep with great ideas win, and bold willed outdated ideas that dont work, lose. Doesnt work the charitable sector. The study is that the top 40 if you look at the fortune 500, fortune 50, from 40 years ago, you find that bethlehem steel, the american can, theyre all gone, replace bid apple and google. Thats why the American Economy still works. On the charitable side it doesnt work because its the same organizations at the top, which reflects how people give and who they give it to, and its also brand names and blocks the way for the innovator, and i believe thats the biggest challenge. Host if i put into it two sentences guest cant putting in in two sentences. Host the current state of affair he or 0 she who does the best marketing wins and the goal is that the organization with the best results and helps the most people should win. Thats the essence, so lets take it from the other side and talk about the smaller charities. Isnt there an impress sis message here when you talk about innovators, they have to reach a certain scale and size typically. So, to be evidencebased, performancedriven, research based, doesnt an organization have to be a certain size to have the capacity to do it . Wouldnt the smaller organizations argue that this is an unreasonable requirement for them to meet . What do you think of that argue. And. They should be able to show the effectiveness of their service before they start. Host dont have the resources to built a Measurement System and theyre doing michigan on the fly, and for us to require it is unreasonable. Guest i actually think like you tapped out. Expect more from the larger organizations, provide data and analysis, and in a transparent way i would not expect in a small organization. Sure, any startup needs to grow and to prove their case, and should have time to do that. Theyre one of the one idea i think you probably know is occasionally flipped around is we should put higher barriers into entry into the system. The system is too big. I disagree with that there needs to be a time place for a time and place for other places to prove it. They have to show their value, whether donors should be supporting 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 the agencies because of the resource drains and other priorities. I think you even note the irs their mission is to get tax revenue and the nonprofits are not really then you also note in your book the Affordable Care act means far less money in state coffers to pay for care for the uninsured. You note it tends to measure effectiveness in government is usually squashed by politics, so special interests. So these are all, i think, fantastic insights about the challenges. And then you, as a solution, in your solution section, you talk about the need to reinvent government. And unfortunately im old enough to remember the attempts by al gore and 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 or slim to nil. What do you think . Guest am i supposed to disagree . Host well you recommended guest expecting it to happen two entirely different things. Lets put the framework around this conversation for the viewers. As you know, the largest source of funding for the charitable sector by far is the federal government, outstripping all other sources, all the sources by far, and larger than any all collections. Half a trillion a year. Its it is. Host its theres larger bucket of money that comes from earned income when you look at the Nonprofit Sector, but its the largest. Guest i treat those differently because income is not on a transactional basis as oppose ode a decision to give money to an organization because it is effect enough pursuing a public purpose. When i recommend reinventing government to borrow yours al gores phrase, i say, lets follow the money. If charities are subject to Market Mechanisms and Market Mechanisms is about dollars, we should go to the people with the greatest dollars and thats the federal government there are some signs, i think, that the obama administration, at least is thinking about that. I reference executive order that came from the office of management of budget last year, saying that a higher standard of evidencebased work in terms of grantmaking procedure. Obama has done the funding for social innovation which another way of thinking how government invests in the charitable sector. None of it leaves me entirely optimistic, but it is a reasonable place to focus a certain amount of energy to think about whether it can be done at least in part. Ill be the pieeyed optimist for once. Host all right. About midway through the book you chronicle some stories of what i refer to as the scoundrel. The two scoundrels in the sector, and one of them you refer to as the association for firefighters and paramedics, mascaraing as a masquerading as a chaired, and you say a web site that is a marvelous obfuscation, revealing not a single fact of relevance to the donor. And heres what you then point out. Should be the case. Number one, what is missing . There is no financial information. Number two, no specific disclosures about how donated dollars are spent. Number three, no information on the largess showered on afts comer hsu shall Fund Fundraising staff and board. So i just a position juxtapositioned that to later on in the book page 205 you say, social investors should focus solely on impact. So thats these are the two sides. But i think when i read between the lines, youre also saying, and at other points youre saying that its critical that an organization have good fiscal management, good oversight by its board. There are a number of implicit things that need to be in place, and i think i think i sent you some of the materials we have been working on. Our premise is that certainly we agree that results and effectiveness and measuring that is the most important thing. No dispute. But there are at least two other critical pillars, if you will, or elements that need to be in place because if theyre no in place, youre not going to have longterm impact. One of them is the question of the Financial Management and health of the organization, bus if its not financially healthy, the results today will be gone tomorrow potentially. Secondly, this notion of oversight and governance and if you dont have a strong board that makes sure that its results are driven and holds the staff to account, that has ethical and strong policies and procedures procedures procedures and so forth, you could run into scoundrels or some mismanagement. So, dont you think its not just about solely impact but also about putting these other systems in place to get to and maintain impact . Guest i think the two things i would be im moats i should say, i was indebted to Charity Navigator for a lot of the research. And its actually a problem i dont want to blow it out of proportion but one of the challenges in the charitable sector because theres no real regulation and oversight actually full of scoundrels. At it hard to tell because the example of the association of firefighters, rather long name. Actually hard to tell there are actually 59,000 charities named veterans in the title. If you can if anyone in the field can tell me the difference between them, theyre doing a better job than i am. I think the challenge is finding what to me are the two things i really care about. The Donor Community should care about. Is effectiveness and transparency. And i think if you have those two things, youll find the right data. Its no doubt, it is i think im in entire agreement with you that great organizations will have rigor around how they spend money, have the right institutional oversight and that will result in effective organization. To me a lot of the book was about trying to focus not that those are necessarily bad although i question some of the overhead ratios that are often the primary focus of peoples attention. Not that those are irrelevant but theyre the Building Block for the greater issue. If you get that right the other things will follow rather than get the overhead and the administrative fees right and the rest will fall. Host im simply saying that you need to be maintaining all of those systems effectively to do it right, and if you dont have those Building Blocks, you wont be able to maintain it or even get there. Guest i dont disagree with that at all. A lot of my book was really trying to actually fairly starkly get peoples attention to the fact that conversation is about effectiveness, which i think we agree on. And one of the reasons that Charity Navigator is launching at 3. 0, which is actually been announced since my book went to rest i wish we had that knowledge before. Get an opportunity to talk about the fact that Charity Navigator 3. 0 is the first global attempt to evaluate effectiveness mitchell brother called me yesterday, and said, well, who should i there are five v. A. Organizations and which this right one. I said, i have no idea. He said it should be easy. I said, youll have to wait because down the road there are assets coming thats going to help my poor brother, unwilling to put in half hour work to understand the environment the best environment for his donations. Just a side bar on veterans organizations. We see a striking example of the scoundrels clustering around veterans, police, and firefighter organizations, and there seems to be this knowledge that thats one of the places where the American Public resonates with the American Public, the sacrifice and so the ability to manipulate the storytelling and the marketing, to get those dollars by scoundrels, is enormous. So i think its great you highlighted an organization in that area. Guest we have all had the experience, you and me and probably everybody watching, the phone rings at the dinnertime, someone from the policemans, veterans, firefighters, fighting cancer, where we also see a lot of scoundrels collect fill in the a blank organization asking for money. And no one just on the phone, around dinnertime, can possibly have a thoughtful conversation. People want to help. Theres an impulse to help, but really important issues and really important people in our lives. But its impossible to make that judgment, and thats why i thing scoundrels collect around a topic and invest in boilerroom phone calling and do pretty well out of it often. Host more about donors. A great stud jim,0y, i think the first of its a great study, the first of its kind in years on studying door know behavior by hope consulting youve note that the results of the Study Indicate that 90 of donors say that effectiveness of the organization is most important to them. But then when you scroll down, perhaps two or three percent actually do the work and follow up on that. In. Guest in defense of donors, i give you the following argument. Four years of research on this whole subject. In a way, with a few exceptions, and a couple of cause areas, perhaps reviewed by others that do a deep dive. But for the vast majority of cause areas of nonprofits, the average donor who has limited times and means to do a whole lot of research, theres no there there for that donor. In other words, the amount of publicly available evidencebased research, in most cause areas, is virtually nonexistent. So, i sometimes have a problem with this sort of beating up the donor, if you will, because thats what can be inferred. Im not saying the guest i do host im not saying there isnt a problem and not saying there isnt evidence that certain number of or Certain Group of donors are going to row many impulsedriven in their giving. Im not saying no to that. I also think the 90 figure is an indicator of hope that if there was more easily accessible, readily accessible, resultsbased data, publicly available thats the key and you dont have to dont a stonewalling, that if it was publicly available information, a lot more people would use it, and i think thats part of our challenge for donors. Its just theyre between a rock and a hard place. The last thing ill say on this, one of the concludes that consulting makes not mentioned in the book, but their recommendation is a seal or rating system, and that the evidence is that donors, regardless of income, always will be looking for information that is free, easily accessible, and easily understandable. And i think you also talk about relying upon expert information. But even the experts need to get information, and its just not there. So, what are your reactions to that . Well, a little bit of the chicken and the egg problem, ken in my view. I would say that if donors demanded it, charities would follow. They are thats the market mechanism i think about and write about. I think we have a case where donors dont demand it, therefore charities dont provide it. Not the other way around, charities dont provide it and donors dont look for it. One of the things that was mentioned in the book that always grabbed me was a report in the a paragraph in the hope consulting report, a focus group, where they interviewed a guy, mark kay, and i think mark kay actually encapsulated the donor mentality pretty well. He said, look, i dont do research because i know that charities are going to do some good. Where i put my time and research is things like products. I buy the microwave,ll do research. I dont need to do the research for charities. I think that actually captures the prevailing ethic right now among donors. Part of my book is, i would say, plea to the Donor Community tree think it. All charities are not alike. Theres good ones, bad ones, guys in the middle. We have to get money to the best so they survive, and that the others dont. Host i think the reality out there may be a little bit more hopeful or nuanced than that, because when we do have six million visits at this point per year, and as weve been promoting 3. 0 and our other efforts become to emphasize more on results, if anything, the amount of support we have gotten, the amount of positive reactions from users and from donors to charities, has been enormous, and anytime weve had conversations where you sort of connect the dots for people and say, did you know that the organization that youre supporting has provided no evidence its actually effective, and there are others that do. When you have those conversations with people and walk them through it, most donors are certainly open, and somewhat surprised. I think there may be some implicit messages but i dont think its intentional on the part of donors. Guest i think we have built up an ethic around how people donate. The process, how to do it often done through organizations they know. This where is you made the argument about brand, brand names. Its about the charities of friends, relationships win. Done out of habit. 80 of people give to the same charities year after year. Thats why, not to be up optimistic, but that why i think twothirds of the people in the hope charity hope consulting survey did zero research. But there are some, six million is a great number. Happy it would be 10 million. How do we transit . The challenge is how to get from six million to everyone thinks about it. Were nowhere near that and were on the same page in saying that people thats where we need to have the conversation. Youre not donors. Youre investors and thats the change that needs to happen. Host a fairly long way of going. I hope we can collaborate on that for the benefit of the whole system. Host amen to that. So, hope consulting story, you mentioned the 80 that dont do research. Another hopeful sign they pointed to was 15somead odd percent of the people they surveyed, even if theyre not currently doing research, theres evidence theres an openness and that when they do the calculations, were talking about tens of billions of dollars that could be unleashed if there was more robust Data Available readily accessible for donors. So, what are you thoughts on that whole part of the research . Do you share that optimism, we can unleash that focus . I dont know if i actually read the hope consulting report as being particularly optimistic. They said there was some money be to unleashed, and i dont doubt that at all. But talking about 1. 5 trillion economy, talking about 40 jim,0 50, billion dollars. Im not here to sped on 40, 50 million. But. Host there might be more money unleashed in other sectors. Guest theres also my point which its great to get another 40 or 50 billion into it. Great if we got the 1. 5 bridge. Host trillion. Guest trillion, yes. Just the hundred billion which is the form of grants. We got that moving in the right direction,