Nonprofit Chronicles

This month, a Silicon Valley startup called Frank that aims to serve nonprofit groups and their donors paid these expenses: $24,514 to nine people for product development and design, $3,124 to the VLP Law Group for patent work, $3,271 to Trinet for HR services, $99 to Dropbox, $54 to Google and $7 to Github. Its bank account balance, as of last week, was $97,477.

Too much information? Daniil and David Liberman, the Russian-born brothers who are leading Frank, don’t think so.

“If we want nonprofits to be transparent and donors to trust us, we have to be radically transparent ourselves,” the Libermans say.

That is the purpose of Frank: To make nonprofits more transparent, and by doing so help them build trust with donors. It’s a bold, radical idea. It’s going to be a hard sell to nonprofits. But, at the very least, it’s a reminder of how far nonprofits and foundations have to go when it comes to transparency–and how far they could go if they chose to.

Why would nonprofits want to be so open?  “The main incentive is better relationships with supporters, especially when nonprofits work with young donors,” says David. “If they want a deeper interaction, this is the best way to build trust.”

“Some organizations may be really afraid of this,”Daniil admits, “but those that are really efficient should realize it is a great opportunity.”

A family business

Frank is a family business, in spades. It was started by five Liberman siblings: Daniil, 33, and David, 32, who live in Palo Alto and spoke to me the other day via Google Chat, and their brother Gabriel and sisters Mariya and Anna, who are in Moscow, where the family grew up. An older brother, Michael Liberman, is a former Goldman Sachs executive and chief operating officer of hedge fund BlueMountain Capital.

The Libermans are funding Frank with earnings from several prior startups: a game development company called Sibilant Interactive, a Russian social network for gamers and an animation studio that produced a satirical series for Russia’s largest TV network.

They told me that the idea for Frank predated all those businesses. In fact, they first presented it to Russian authorities years ago.

“You can pretty much imagine the reaction,” Daniil said. “We were offering them an ultimate solution to corruption.”

The technology behind Frank is relatively simple: Its software publishes transactions from a bank account onto a website or mobile device, with no human intervention, so the data can be trusted.

The Libermans expect to start small–with crowdfunding campaigns, or a group of parents raising money for a school, or a community charity. While they will initially target nonprofits, they can imagine the platform being used by local governments to show citizens how it is spending money, or by factories that want to show brands they are paying workers fairly.

The challenge for the Libermans will be balancing their desire to provide transparency, which is almost always a good thing, with their users’ desire for privacy. Will nonprofits want to make the salaries of their workers public, or let donors know where the executive director stayed during that conference in San Francisco? Will they want to show donors how much they are paying consultants to help with fundraising?

“This requires a gentle approach when we talk with nonprofits,” says Daniil Liberman. “Even those who think it is very cool, they immediately start thinking what if, what if, what if.”

Smart nonprofits should not dismiss Frank out of hand. After all, compensation for their best-paid staffers is already made public on IRS forms (although, annoyingly, those forms are often way out of date). Some for-profit companies practice what is called open book management to good effect, sharing financial data with all of their workers. “Radical transparency, the idea of everyone knowing everything, could actually be a major driver of increased organizational performance,” an entrepreneur and an academic wrote several years ago in Harvard Business Review.

The Libermans will also try to persuade nonprofits that Frank will save them time and money on bookkeeping, tax and financial reporting. They plan to charge fees to nonprofits that want to use the platform, although they are also talking to west coast foundations about financing pilot projects for grantees. It will almost certainly take support from donors to get nonprofits to be more open.

This is likely the first time most of you have heard about Frank. It may be the last. But I hope not. I’d like to see the platform evolve and grow, by working with nonprofits and foundations. Even better would be a platform that, along with financial transparency, could deliver more shared insight about the impact. Guidestar has just taken a step in that direction with its Platinum tier.

Whether or not Frank gets traction, nonprofits, government and businesses are sure to face rising expectations of transparency from donors, citizens and customers. It’s harder than ever for institutions to keep secrets–think about the recent reporting on the Wounded Warrior Project and the American Red Cross, the Panama papers, the Exxon Mobil climate change story, Edward Snowden or cell phone videos from inside factory farms.

I’ll spare you the famous Louis Brandeis quote (now 103 years old!) and instead say that embracing radical transparency could be a way for daring nonprofits to set themselves apart from the crowd.