For many nonprofit organisations, 30 June marks the end of their financial year. Consequently, thoughts now turn to finalising the trial balance, engaging with the auditors, and preparing annual reports.
End-of-year is when we close the books, take stock, and reset. It’s also the best time to capture lessons from ethical challenges, identify emerging risks to moral capital, and reset or refine your ‘indicator frameworks‘ for the year ahead. This creates a rhythm of ‘moral stewardship’, not just reactive firefighting.
Governance has been described as ‘doing the right things the right way‘ (paraphrasing the quote from Peter Drucker highlighted in the header image above). The governance and moral accountability perspectives compared in the above chart are both expressions of this same sentiment. As suggested in the chart, Buddhism’s Noble Eightfold Path is also echoed in the phrase.
Annual Reports focus on both progress in achievement of strategic and operational targets, and the financial health of the organisation. While annual reports must account for the way the funds were used, they are also a mechanism for ‘moral accounting and reporting’.
Your moral and relational ledgers
Reports on the outcomes and impact of organisational programs and strategies honour the trust placed in the governing body and staff. Other ways of thinking about ‘trust’ accountability involve ethics, sustainability, and relational domains.
Trust, credibility, and integrity are ‘moral assets’ that grow or depreciate depending on how we manage them. Whether we have an appreciating or depreciating ‘trust balance‘ is not an accident. It’s the result of deliberate intention and action.
This concept, as outlined by Stephen Covey, was previously mentioned in my post Social Capital and the Thickness of Trust, but is expanded upon in the text and charts which follow.
Moral and relational ledgers can be maintained to support your reporting on trust related matters.
Trust is one of the most valuable and fragile assets a nonprofit can hold. Closing the year without reviewing it therefore, is like publishing a balance sheet without your biggest liability. Using your Theory of Change (ToC) as a reference, several layers can be seen to involve trust – both as a pre-requisite for success, and as a strategic outcome.
When we are making an ethical decision, or a decision which has an ethical dimension, we may describe this as using ‘moral calculus‘. After the event, when the result of that decision is known, is when we use ‘moral accounting‘ to assess its ethical consequences.
The Case for Moral Reporting
Financial reports show ‘what you did’; moral reporting shows ‘how you did it’. Members, stakeholders, donors, staff, and beneficiaries are increasingly asking:
- Did we act transparently and ethically?
- Were we equitable?
- Did we honour trust?
This kind of accountability sits right alongside our reporting on achievements and financial outcomes.
Trust Indicators
Answering such questions, and reporting to stakeholders about them, requires the use of indicators. These will preferably be identified at the start of the period on which a report is to be prepared. As for strategic and operational goals, trust and values-based indicators may be quantitative, qualitative, or hybrid combinations of both.
The following charts offer a range of perspectives and approaches to the identification, development, and implementation of trust and values-based indicator frameworks.
Organisational values define a set of commitments and priorities that set expectations about the way directors, volunteers and staff will behave. Recognising their importance, the assessment of whether or not those commitments have been met is a key aspect of your organisation’s accountability.
This requires identification of the indicators that will frame that assessment, and consequently, shape reporting on the expression of those values in the annual report. The next group of charts describes approaches to the use of value-based indicator frameworks, elements of which you may be able to adapt for use with your organisational values.
From Reporting to Monitoring: Building for the Year Ahead
The end of one reporting year is, of course, also the start of the next. End-of-year reflections therefore inform next year’s goals and the associated monitoring framework.
- What indicators will you track quarterly?
- What systems will you put in place to catch trust erosion early?
- How will you involve your board or staff in ‘trust stewardship’?
- How will you align trust indicators with your Theory of Change / Strategy (positioning trust as an enabling condition for impact)?
The Other Triple Bottom Line
The triple bottom line (TBL 1.0) of people/planet/profit has offered a valuable enhancement to the traditional profit/loss focus of annual reporting. It can be complimented by reference to TBL 2.0, Rights/Responsibility/Reasoning.
TBL 2.0 is described briefly in the chart below, including a comparison of the focus and governance emphasis of each. Rather than an alternative to TBL 1.0, TBL 2.0 may be considered its companion.
Call to Action: Start Now
The transition from one reporting period to the next is the right time to:
- Build a lightweight ‘Trust Ledger template’
- Run a team retrospective on trust gains and losses
- Publish a short ‘Moral Year in Review’ — even if just internally
Financial solvency keeps you open. Moral solvency keeps you credible. End your reporting year by balancing both.
“If you measure what matters, trust must be one of those metrics.”
See also:
Good Change: Bad Change
Social Capital and the Thickness of Trust
Creating Value Using an Integrated Multi-Capital Approach
Moral Governance Part 1
Moral Governance – Part 2
Moral Governance – Part 3
