People, Power, and Accountability

Measuring social impact is about giving power to those affected by the work of an organization. Like financial accounting, it should provide information so that  stakeholders—usually, in the case of nonprofits and social enterprises, the beneficiaries—can hold organizations to account.

Interest in measuring social impact is increasing. Advice abounds in guides on social value and social impact by the Social Return on Investment (SROI) Network, a membership organization and social enterprise with a 40-country global reach; the European Venture Philanthropy Association; and the European Commission. At conferences, measurement has moved from a graveyard slot to center stage, and ANDE recently held its fifth-annual metrics conference.

I believe that an awareness of growing inequality—“the defining challenge of our time,” according to President Obama—has created this interest. This awareness, and the damage inequality causes, is evident in a recent International Monetary Fund report on growth and inequality, and in books such as Joe Stiglitz’s The Price of Inequality: How Today’s Divided Society Endangers Our Future. Investors, corporations, and social entrepreneurs want to have social impact. They all need to know what that value is.

What’s certain is that the beneficiaries of organizations that are delivering social impact aren’t driving this interest. Yet when people talk about social impact, they talk about the importance of beneficiaries. This began with “participatory evaluation” and became “stakeholder involvement” in approaches such as the Global Reporting Initiative. Meanwhile, organizations such as Keystone Accountability began focusing on incorporating the voices of beneficiaries in measuring impact and, in a recent SSIR article, Tris Lumley of NPC argued for “understanding the lives of beneficiaries through research, experience, intuition, and every tool we have at our disposal.”

For us at the SROI Network, stakeholder involvement—giving voice to those who otherwise cannot hold organizations to account—is central to our work. The network developed a framework for accounting for value and measuring impact that starts from the perspective of all stakeholders.

Unfortunately, while guidance on social impact argues that stakeholders are central to measurement, program design, and evaluation, discussions about it often turn to how to measure so that the organization can improve. And the absence of agreed-on measurement standards means that those who do report on impact can decide what they want to include.

We know that accountability is a good thing and that organizations that are accountable can make better decisions. But we need someone else to make sure that organizations are held to account. This is what stakeholder involvement needs to mean.

In financial markets, we have mechanisms to ensure accountability, legal and standardized reporting requirements, and external pressures from journalism and NGOs. Customers and investors can always go elsewhere. This level of accountability means that financial information is useful for making decisions and choices. We need these mechanisms not because the world of finance is full of bad people that need watching, but because the world of finance is full of people.

“A body of men holding themselves accountable to nobody ought not to be trusted by anybody.”―Thomas Paine

If we compare financial mechanisms with those in the world of social impact, what do we find?

Legislation? No thanks, people say, we don’t want to be strangled by bureaucracy. But with no legal requirements to report on social impact, information to help decisions is hard to come by.

Standard reporting? No thanks, there are far too many ways in which social impact is created. But then, how do people know what they are reading and its relevance for decision making?

Audit? No thanks, it's expensive and unnecessary. But this means we can’t be sure that what organizations report is complete or reasonable.

As a result, beneficiaries, boards, and investors can make choices on the different ways of creating social impact and maximizing social value.

Those expected to benefit from social impact can neither sell up nor take their business elsewhere. They certainly don’t employ the auditors (or the impact evaluators). And with no legal support, they cannot hold those who act on their behalf to account.

If stakeholders had any power—if the social sector were accountable to them—I suspect there would be legislation. I suspect the process for choosing, measuring, and reporting outcomes would become standardized. I suspect there would be demand for external audit. I look forward to critiques of the work of organizations seeking to create social impact and to more media reporting on performance and accountability, giving a voice to beneficiaries.

Any approach to measuring social impact that doesn’t include a transfer of power to stakeholders is just marketing. It isn’t enough for “us” to understand stakeholders; they must have real power to enforce accountability and benefit from social returns. Ownership is one way of ensuring accountability, but there are others. The SROI Network provides an independent process for members to ensure that their work is consistent with the principles. This process acts, in effect, on behalf of the stakeholders so that their perspectives inform what organizations measure.

I believe that organizations that want to be more accountable will, over time, be successful. But it will take more than leadership from investors and businesses. Standard principles for accounting and reporting on social impact exist; organizations like SROI and benefit corporations are providing and developing assurance processes. But we need changes in public policy and regulation to drive this forward..

We design and enact laws to protect citizens from each other, especially those who have less power and influence. What social impact reporting needs is something like the legal framework that requires business to produce audited financial accounts. Anyone claiming a social impact should produce social accounts that are true and fair from the perspective of those affected. Without this, there is a risk that the guidance that develops will only provide comfort to investors and enterprises.

We need to raise the game if we really want to reduce inequality—not because the world of social impact is full of good people that need watching, but because the world of social impact is full of people.

Read more stories by Jeremy Nicholls.