PHINEO, the German ‘NGO ratings agency’, was launched in 2010. It offers analysis of where best donors should grant their money in a hectic market of 550,000 NGOs in Germany. CEO of PHINEO Andreas Rickert took part in the Salzburg Global Seminar session ‘Value vs Profit: Recalculating Return on Investment in Social and Financial Terms’ in October 2012. After his presentation in the ‘Improving the Social Sector’ panel, SGS editor Louise Hallman sat down with him to find out what PHINEO is doing to bring about these improvements.
SGS: What exactly is PHINEO?
AR: PHINEO is a new organization. Some of you are familiar with New Philanthropy Capital in London – we basically took their approach and applied it to the German situation. So what we are doing is analysing social issues in Germany to figure out what is the role of the social sector and where are the funding gaps. We analyse in a very rigorous way non-profits in Germany to give donors information about where to get involved or where to give their money.
SGS: So how do you go about analysing the non-profit sector?
AR: We are now 32 people, so even though we started two and a half years ago, we are already indicating there is a need for independent information. But nevertheless, with 32 people, we cannot cover the entire sphere and landscape in Germany. I have to make an adjustment to the number of 550,000 non-profits in Germany – not all of them are actively doing fundraising, so out of those roughly 20,000 are doing fundraising and they are primarily interesting for us because they are out there asking for money. As we would like to get information to donors, we should provide information on those.
Whenever we analyse, we need to have a deep understanding, and we need to know the context in which an NGO is trying to make a change, so that is why we have chosen the approach of sector reports. So we take a topic like child poverty, or dementia, or climate change, and then we just analyse it at a meta level – what is the role of the social sector, what are the funding gaps, what are the approaches, what are the target groups, etc – and then we invite all organizations active in this field in Germany to be analysed. And through this approach we can channel the organizations which are relevant for our analysis and then it is an open process. We invite them to be analysed, so they don’t pay for that, and it’s risk-free. Our guess is probably about a quarter of the organizations active in this field take up our offer to be analysed by us.
SGS: What would be the benefit for a non-profit to agree to be analysed? Perhaps you’re going to turn around and tell them they’re not worth investing in or that they’re not doing a very good job!
AR: The benefits are twofold. Firstly being analysed by an independent party and getting feedback from an independent view is a great tool to improve your work – so it’s a learning tool. And this is what we know the organizations are really using it for. We have done an evaluation and about 80 per cent of the organizations that we have analysed are using the feedback we are giving to them for their own further development. So this is one advantage.
The other thing is that the ones that do pass our due diligence positively are shown publicly. So that’s the point – we’re just showing the good ones and we’re not blaming anyone publicly, so there’s no real risk in our analysis. The ones that are shown to the wider public – probably little more than 100 organizations – can use it themselves to do fundraising, and whenever we are in contact with donors we give the advice that they might choose one of the charities or organizations that we recommend.
SGS: So do you ever tell potential donors not to invest in someone because they haven’t passed your analysis?
SGS: You only ever tell them which are the good ones?
SGS: So you also wouldn’t tell a donor if a charity or organization had declined your services?
AR: No, because we are not a watchdog. We are out there to motivate.
SGS: You said those organizations that don’t do well in your analysis still use your analysis as a learning tool. Are you passing them on to specific other partners who are able to improve their processes or do you just say ‘here’s a report, you’re going to learn from it, work it out for yourselves’?
AR: Exactly. There have been a lot of questions coming from NGOs after they have received our feedback about whether we could help them to become better. This, of course, is a good sign that they respect our results and our feedback, but also of course we can’t do that because it is a conflict of interest: we cannot help an organization to become better and then next year have our team analysing if they are good enough. So that is why we leave them alone with the feedback and we just make clear to them that they are working on it themselves. There are other consultancies out there that could help them but we are not making any recommendations about with whom they should work.
SGS: What are the criteria within which you analyse NGOs for your donor reports?
AR: They cover two different dimensions. The first thing is that we are looking at the organization itself. How competent is it? How efficient is it? What are its governance structures, their finance structures, etc? This is regarding the organization. Then we look at potential impact of their project. So here we look at the underlying theory of change. Do they have the right approaches to reach target groups and their beneficiaries? Do they have instruments in place through which they get information from the beneficiaries so they can learn while they are working with them? So we are not making any evaluation ourselves, but we are looking at whether they have instruments in place which a kind of evaluation can be made from.
SGS: You said it was free for non-profits to take advantage of your services. Do donors pay for your services to receive your reports?
AR: No, and that is the thing about PHINEO – basically we are working in a market in which neither of the market participants are paying for the services.
Of course there is a need also for someone to pay us! As we are introducing a totally new infrastructure into the market of the social sector in Germany, we needed some organizations to believe in these new structures and new systems, and luckily a broad group of partners from the social sector as well as from the private sector – comprising the big foundations like Bertelsmann Foundation and the umbrella organization of foundations in Germany, and also private-sector organizations like the German stock exchange, KPMG, PriceWaterhouseCooper, etc – are giving us money so that we can make our services available to all parties.
SGS: Coming back to the 20,000 non-profits that you said are looking for donors, do you ever expect to be able to provide analysis on all those or are you hoping to set a standard so that other people can join in and follow your lead?
AR: Of course I would like us to cover as many as possible, but there are two restrictions: a) our resources and b) the willingness of the organizations to be analysed. Because of the second point, I’m not optimistic that we will ever have the data from all of them, but I hope that the incentives for being analysed are becoming clearer so that more and more volunteer to share their data. The other point is that, whilst we are not probably in the position to analyse all of them, we also encourage organizations themselves to report on their own activities. Nowadays a lot of organizations are not very transparent about what they do, how they do it and what kind of results they get, etc., so we are encouraging them to not just wait for PHINEO to analyse them but work on their own communications and their own strategies, to show to the wider public what they are doing with the money they are receiving.
SGS: Currently you only work in Germany, but is PHINEO looking to expand in other countries?
AR: We are getting a lot of questions from other countries on whether we could set up something like PHINEO in Denmark, or in Spain, or in Singapore – and of course, from a personal point of view, I would like to do so. From a market point of view, I see there is a need for PHINEO in all these other places as the landscape pretty much looks the same – but we will not do it as PHINEO, and there is a good reason for that. I think you always need a strong partner in the country to set up an organization like that because it’s not only that you need the resources, you also need an understanding of the landscape and of the relevant stakeholders in these countries, and I wouldn’t know who to involve in somewhere like Denmark or Singapore. This is the reason why we are going the other way, where we’re trying to encourage local stakeholders, local champions to just take our model and to set up organizations like us in their own countries, as we did with the NPC model. We took the NPC model, adjusted it to the German circumstances and built it up in Germany, and now NPC and PHINEO are looking for the next country to take the same approach.
SGS: I see you have a PhD in molecular biology. How did you go from having a PhD in molecular biology to working in a sector like this? And how does your very multi-disciplinary background help you in your work?
AR: Well there is no specific knowledge I can use nowadays(!), but maybe it is quite helpful that due to my career and different path I have taken, I’m quite open-minded. And secondly, I see a huge benefit in the exchange between different sectors, so I don’t like thinking in silos. And as I’ve experienced that, I would hope the entire sector would experience that; we all benefit from more exchange between the social sector and the private sector and the government and so on. So there is more need for more exchange and I’ve found it personally very rewarding to have taken all these different steps – from academia with a PhD in molecular biology, going to McKinsey and working as a consultant for them for a couple of years, and then going into the foundation world.
Andreas Rickert is CEO of PHINEO. This is an edited version of the original interview first published on the SGS website.