December 7, 2006 | Read Time: 6 minutes
Until a few years ago, scarcely any financial reports from British charities were available online. And
with a long backlog, it took the government’s Charity Commission days to dig up paper documents about the organizations it monitors.
At the same time that this problem became apparent, Britain began to rethink its nonprofit laws, and the government decided it was crucial to provide more timely information to the public, which had grown skeptical of charities. So the British Cabinet, with the help of the Charity Commission, awarded a $5.5-million grant to the founder of GuideStar, an American nonprofit organization with an online repository of charity data, to create a British version of the site. GuideStar UK went live one year ago.
But at the same time it supported GuideStar, the Charity Commission faced an “e-government” requirement to start posting digital copies of government forms online, including those about charities. It formed its own repository, which went live in September 2005 — and now largely reproduces GuideStar UK.
In the end, critics grumbled, the government paid twice for the same basic public service.
“The problem with the GuideStar Web site is that there never really was a need for it,” says Adrian Sargeant, a professor of fund raising at Indiana University, and until recently a professor at England’s Bristol Business School.
In addition to its redundancy, a delayed start for the project and financial shortfalls — as well as its Yankee roots — ensured that GuideStar UK received a chilly response from the British charity world.
A High Price Tag
To be fair, Mr. Sargeant acknowledges, GuideStar UK, which is run independently of its American counterpart, has a few advantages. It is comprehensive, with access to almost all of England’s 170,000 charities, as opposed to 35,000 through the Charity Commission. It also has more search features, allowing users to sift results by income level and charitable mission.
But Mr. Sargeant feels the price for those features was too high. And though GuideStar says its depth allows donors to dig out niche charities and overlooked groups, Mr. Sargeant says most users don’t care about organizations beyond those that raise the most money: “The public is really only interested in 30,000 or so charities.”
Moreover, GuideStar encourages charities to post their own content about their organizations alongside the information they provide to the government about their finances and activities — an approach that rankles people who think charities use that opportunity to promote themselves rather than provide objective data.
GuideStar officials “never would have called it a marketing site,” says Cathy A. Pharoah, a British research consultant who helped test GuideStar’s databases, “but they were always very clear that charities could add their own data.”
GuideStar says those additions allow charities to flesh out bare numbers and give nuanced accounts of their activities. Ms. Pharoah agrees, but points out it also means GuideStar “is really two systems of information, one of which is a regulated stream, one of which is an unregulated stream.” Indeed, GuideStar does not vet added content.
Ms. Pharoah says she was disappointed that the government and GuideStar didn’t work more closely to produce a single integrated system. The Charity Commission, however, says it and GuideStar have different roles. The commission sees itself as supportive, and says it merely presents data, whereas GuideStar UK analyzes charity data and does so for far more organizations.
But GuideStar’s analysis is not available free; it is available only to paying subscribers. And GuideStar’s size advantage is disappearing. The commission’s site expands monthly, adding more charities, and the government now requires that large charities file “summary information returns,” which supplement financial data with narrative components.
Though GuideStar UK was, briefly, more popular than the commission’s site after it went live, page views for GuideStar UK have dropped 59 percent in the past three months, according to Alexa.com, a Web site that monitors Internet traffic. During that same period, traffic on the government’s site increased 6 percent.
A Drop in Donations
With such low traffic, GuideStar struggled to attract sponsors. Delays in making the site public compounded the problem. As a result, during the third year of its government grant — when GuideStar UK was supposed to be impressing donors, persuading charities to provide extra data, and peddling licenses to nonprofit groups for access to its financial-analysis databases and other services — it was still tinkering in the back room, said Arthur Schmidt, who founded GuideStar in the United States and in Britain.
According to financial reports in its own database, GuideStar UK earned just $126,000 in fees for its services that year, not nearly enough to make up for losing $1.45-million in support from foundations.
In addition, government funds dropped $820,000. Over all, after some spending cuts, Guidestar lost $1.06-million that year, almost a third of its operating budget.
Though it accepted no more government money, foundations and corporate sponsors had to step in and prop it up for another year, a save Mr. Schmidt called “fortunate.”
Mr. Sergeant, of Indiana University, says GuideStar “had a strong business plan for spending the millions, but they didn’t have a strong business plan for becoming self-sustaining.”
The American version of Guidestar has made progress in achieving that status. Subscribers, who get access to grant information, salary data, and a larger database of information than is available free, provide the majority of its revenue, 60 percent of its $7-million annual budget. Foundation grants, which make up the other 40 percent, pay for the free portion of the U.S. site.
For now the site is healthy, Mr. Schmidt says, but he noted that, as the original GuideStar enters its 12th year of operation, “there’s a declining interest, with different foundations pulling out entirely.”
He has a harder time securing donations because GuideStar is no longer new, and supporting “infrastructure” with grants, he says, “doesn’t make you feel warm and fuzzy the way saving starving children does.” Income from data licenses is more steady.
GuideStar UK will begin pushing its licenses to institutional and research groups after the first of the year. Until then, the organization is solvent through summer 2007, Mr. Schmidt says. And he’s glad for that cushion, because he doesn’t want to return for extensions on grants, given his view that the British philanthropy world is “fraught with politics.”
He says in his experience people believe “infrastructure” like GuideStar diverts money from more obviously needy causes and his push for government and foundation funds “made some of the competition and some of the jealousies very acute.”
Though confident the site he founded can shore up its finances, Mr. Schmidt said he understands that it must prove its utility very soon, especially since he has ambitious plans to spread the GuideStar approach around the world.
Mr. Schmidt plans to expand the GuideStar franchise to Germany, India, Hungary, South Africa, and South Korea, and is exploring its potential in 15 more countries — all of which, he says, have fragmented or convoluted nonprofit fields, unlike the centralized system that made expansion to Britain seem so attractive.
