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Why being financially transparent is important

3 min read

For-purpose organisations around the world are turning financial transparency into a competitive advantage.

They understand that in a highly connected world that demands access to information, stakeholders more than ever necessitate transparency. As a result, these organisations are winning over supporters who are actively engaging with their brand from a position of trust.

Donors, corporates, governments and other who fund for-purpose organisations are becoming more strategic in how they allocate their resources. They want to be engaged in the mission and demand evidence they are funding well-managed and -governed organisations that will maximise their social impact. In other words, funders want to make informed choices so are demanding transparency. Organisations that are on the front foot, practising financial transparency and inviting stakeholders to engage with their brand under conditions of full disclosure, are prospering.

Why should for-purpose leaders be thinking about promoting financial transparency?

It is here, whether you like it or not. With the implementation of the Australian Charities & Not-for-Profit Commission (ACNC), transparency is becoming almost impossible to avoid for most organisations, including many philanthropic organisations.

  1. Controlling the messaging around an organisation’s financials is critical. Being proactive around transparency allows you to tell the story, rather than having stakeholders interpret information without any narrative. For instance, you can associate your financials with outcomes and impact, inform stakeholders of the importance of your overhead spending to mission success, and communicate the strategic importance of your surplus assets (endowment).
  1. It enhances an organisation’s relationships with stakeholders. Organisations are competing harder than ever to establish and maintain meaningful relationships with stakeholders. Transparency promotes trust, which is fundamental to this relationship.
  1. It demonstrates an organisation’s commitment to good governance. Transparency instils trust, integrity, honesty and transparency, all integral ingredients for good governance.
  1. It can breed the right behaviours and drive performance within an organisation. Publically displaying financial performance and outcomes can be a great motivator for the board, staff members and volunteers.
  1. Promotes an organisation’s sustainability. Displaying your financials can demonstrate to stakeholders the strength of your financial position and ongoing sustainability.

Technology and social networking are making access to information easier, and for for-purpose organisations to connect to stakeholders. Examples include applications such as Frank, which lets donors to see how every dollar is being spent on social ventures as well as engage in active conversations with the organisations they are looking to support.

Not just NFPs

The movement toward financial transparency is not just limited to the for-purpose sector. More questions are being asked of for-profit organisations, particularly around their pricing (such as banks) and supply chains. Tailoring company Everlane provides customers with full garment details, including material costs and labour costs along with retail mark-ups, allowing customers to make informed decisions.   

Financial transparency extends beyond the disclosure of an organisation’s financial position. It includes information on how funders’ dollars are spent, information on the organisation’s ongoing financial strategy and performance, along with disclosure of financial governance and management practices. As an example, organisations with investment assets rarely provide adequate information. They fail to communicate their investment policy, which should stipulate how the assets are invested, the parameters for investing and, most importantly, how the investments service the organisation’s mission and beneficiaries.

Social-purpose leaders need to accept that in order to develop strong, lasting relationships with stakeholders, transparency is paramount. Financial transparency is not just important for your own organisation’s reputation, it is important for the entire for-purpose sector. Charity more than ever needs the public’s trust, and we should be doing all we can to gain and steward that trust.

Chris Wilson, partner, Koda Capital, chairman of The Reach Foundation, founding committee member of Impact100Melbourne. 

This article appeared in Third Sector’s December print mag- click here for more information.

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