How can an NGO fail?

“Few new nonprofit ventures, in contrast, ever reach national scale (Habitat for Humanity and Teach for America are among the exceptions), and the largest nonprofits rarely fall out of the top rankings or disappear. Apparently, Schumpeter’s cycle doesn’t operate in the social sector”.

Well, if Schumpeter’s cycle doesn’t work, why not? Personally, I think that this speaks to another major problem in the sector – there is no failure mechanism. If an NGO’s Board wants to carry on and the organisation has cash, there is nothing to stop them. There is no obligation to merge or look for allies. There is no real driver of quality other than the values of the organisation. You can have many organisations doing similar work in the same areas – replicating all the costs of doing business. There is nothing to stop this from happening. In fact, the way that donor funding works almost facilitates this as agencies compete for funding and – as we know – national donor agencies tend to fund NGOs from their own countries first….

So, how can an NGO fail? It seems to me that the only way that an NGO could fail is through losing its reputation in some way and for donors (institutional and individual) to stop providing finance. What can trigger this? Clearly fraud is one risk – but I think that NGOs take fraud seriously and manage to mitigate very well despite working in very difficult locations, where there is a culture of corruption.

Ignoring fraud, what else could cause an organisation to lose its reputation? Hopefully, not delivering on its mandate would be one. Doing the wrong projects or delivering projects poorly repeatedly should (I would have thought) be a cause for failure – as it would be in other sectors. I don’t know of a single case where this has happened and I would be very interested and grateful if anyone can show examples of where this has happened to a large organisation. I’m sure there must be some examples… I know of lots of examples where big NGOs have cancelled grants to smaller, local organisations – poor performance etc. I even know of donors, who have qualified large NGOs because of their poor reporting. But actual delivery?

If this is the case, I can see why NGO Boards barely or rarely consider projects as a Board level issue. Why should they, if it doesn’t impact on reputation? Perhaps this is what leads us to seeing the  “no-cost extension” as a get-out-of-jail-free card for any project delays. I’ll write about this separately – but I wonder if NGO staff would be so sanguine about delays if it were their house/school/health centre being built.

Unfortunately, it seems to me that there is no real link between actual delivery i.e. doing what we said we would do and either gaining or losing reputation – except with project beneficiaries – but who’s asking them?

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