Monthly Archives: November 2007

Charity Navigator’s Vital Mission Hides Flawed Rankings

November 20, 2007 – 11:23 am

This entry to the One Post Challenge comes from Michael Soper. Michael is President, TeamSoper and the Development & Marketing Management Corporation. Formerly, he was Senior Vice President, Development at PBS and WETA.

By Michael Soper

Strong Marketing of a Weak Success Measure: Charity Navigator Vital Mission Hides Flawed Rankings

Everyone wants to figure out how to evaluate nonprofits. Grantmakers, donors, volunteers, journalist, and nonprofit leaders.

Individuals who contribute and the nonprofits that use those funds to provide vital services would both benefit from ranking of effectiveness and efficiency. Such evaluations would encourage nonprofits to constantly improve their performance and allow funders to make smarter investments.

Those were the driving motivations behind the creation of Charity Navigator and other nonprofit rating / ranking services. Yet, if you believe Charity Navigator or others have found the holy grail of evaluating nonprofit organizations you’re sadly mistaken — and I encourage you to keep reading.

For-profits have one thing nonprofits do not — a clear set of financial measures of success. Across for-profits is it relatively easy to measure and compare profits. Yet, it is much tougher to measure effective and efficient service – the mission and goal of all nonprofits.

Charity Navigator’s rankings are the result of gross oversimplifications. For example, Charity Navigator’s:

  • Evaluation process begins and ends with creating ratios based on almost any two numbers found in nonprofit organizations’ IRS Form 990.
  • Presumption is that all nonprofits complete their IRS Form 990’s in the same manner, using precisely the same definitions of what income and expenses are reported in response to a given question on Form 990.
  • Ratings do not include an “affirmative confirmation” from nonprofits’ top management to guarantee the accounting basis of specific figures or that the resulting ranking is both correct and fair.

Imagine a nonprofit institution raising capital funds for a new facility. Simply looking at the IRS Form 990 could lead one to believe the organization had a dramatic increase in revenues. That’s good news to the nonprofit — unless, for example, Charity Navigator decides to use that year as a “base year” on which to evaluate future year’s revenues. Future ratings and rankings could show the nonprofit in decline as a result of the decreasing revenue.

Or, consider how you would rate a nonprofit whose mission is to care for people during and immediately following natural disasters? Funding for the organization is like winding a clock-spring. All of the investments in infrastructure are “waste” if there are no disasters.

On the other hand, if there is a disaster and the expensive infrastructure doesn’t exist, the organization will fail to react instantly when conditions demand nothing less. Only when the spring is wound can the organization deploy resources and services when they are most needed.

These situations have me reflecting on the age-old loaded-question, “Are you still beating your wife?” Charity Navigator’s ratings, rankings, and top ten lists are all presumed to be true as published until and unless they are challenged a nonprofit that was damaged by an overly simplified ranking system that is not based on an apples-to-apples comparison.

In my view, Charity Navigator, its ratings, and its top ten lists are nothing more than great merchandising of a weak underlying product.

For example, wouldn’t any donor or nonprofit be interested in the following “Top Ten” Charity Navigator lists?

  • 10 of the Best Charities Everyone’s Heard Of
  • 10 Highly Rated Charities Relying on Private Contributions
  • 10 Charities Routinely in the Red
  • 10 Charities Stockpiling Your Money
  • 10 Charities Expanding in a Hurry
  • 10 Charities in Deep Financial Trouble

These lists — while attractive — are the “National Enquirer” approach to a topic that demands more substantive evaluation of nonprofits’ effectiveness and efficiency. While not as quick or easy as Charity Navigator’s overly simplistic rankings, it’s fascinating to see Charity Navigator’s own recommendation on how to evaluate nonprofit institutions that it does NOT rate (listed below) far more closely represent the time, questions, and interaction with nonprofits that are required to evaluate their effectiveness and efficiency.

Charity Navigator’s Suggestions On Evaluating Nonprofit Success

  1. Can your charity clearly communicate who they are and what they do?
  2. Can your charity define their short-term and long-term goals?
  3. Can your charity tell you the progress it has made (or is making) toward its goal?
  4. Do your charity’s programs make sense to you?
  5. Can you trust your charity?
  6. Are you willing to make a long-term commitment to your organization?

I give up! If these are the questions that Charity Navigator recommends you and I ask of nonprofits, why don’t they use these same questions themselves?

I can think of four answers:

  • It would require an enormous investment of time and money to gather the answers.
  • Even if answers to the above questions were collected, they don’t lend themselves to numeric ratings;
  • Without numeric ratings, it is next to impossible to produce apples-to-apples rankings, and, finally;
  • Without low-cost, easy to produce nonprofit rankings, there is no Charity Navigator.

Regardless of their size, the rating of a nonprofit’s service is complicated and highly subjective. The list of provided above by Charity Navigator is a good starting point for discussions with a nonprofit’s leadership, top management and key professionals.

But here in all this complexity and subjectivity is the beauty of making an individual decision to support a specific nonprofit organization.

Over time, you learn about those organizations dealing with the causes you care about most – and are passionate about their mission.

After all, if it were that easy to determine the most successful nonprofits, everyone could invest in nonprofit mutual funds and fund managers would make the investments in only those organizations’ services rated at the top of the list in terms of effectiveness and efficiency.

Large donors and small donors. Very well funded and not so well funded nonprofits. In all of these cases, half of the fun of investing in nonprofits – in giving away your hard earned cash – is learning about the similarities and differences between the half-dozen organizations meeting needs you believe are essential.

In the end, a significant contributor only has two good options.

  • They can become involved, get engaged, and learn about the organizations they fund.
  • Or, they can simply hire me (just teasing) – or any other consultant with substantial hands-on, nonprofit experience, to collect information on nonprofits of interest and provide them with a thoughtful narrative report.

My real concern is that Charity Navigator’s rankings appear to be so powerful and easy to use that:

  • Individuals will fail to take the time and gather the information to determine which ratings may be solid and which are gross oversimplifications or just plain wrong.
  • Potential contributors will simply discard a deserving nonprofit from their list of giving priorities, and / or;
  • Donors will fail to use the rankings provided by Charity Navigator as one of many topics to discuss with the top management of the nonprofit that interests them.

Charity Navigator’s (and other data aggregators / information providers) current ratings, rankings, and practice of publishing the “truth” until proven otherwise fails potential donors, some nonprofits, and its own mission.

I’m not suggesting that every poor rating of a nonprofit by Charity Navigator is incorrect or undeserved. I am urging the nonprofit industry to create better measures and / or methods of evaluating nonprofits’ mission-driven services in terms of effectiveness and efficiency.

Until that time, I would urge all nonprofits to be open and accountable and all current and potential contributors to become more involved with and knowledgeable about the nonprofits engaged in the causes that interest them the most.

I Really Can’t Have It Both Ways?

November 20, 2007 – 11:14 am

This entry to the One Post Challenge comes from Suzy Meneguzzo. Suzy works at a community foundation based in the Midwest.  Her work in the philanthropic sector has included grant making, programming, evaluation and governance.

By Suzy Meneguzzo

I really can’t have it both ways?

A great deal has been written recently about the appropriateness of foundations existing in perpetuity, level of payout and the desired life span of foundations.  Arguments seem to run to one extreme or the other: Everything should be paid out now or keep the endowment growing and maintain the 5% payout so that we can continue to work on these problems as the solutions evolve in the future.

It makes me wonder, though, if the discussion shouldn’t be framed differently.  Shouldn’t the question be, given the outcome we are trying to achieve (insert mission here); it is most effective if we spend, don’t spend (insert action here)?  Isn’t it really about which tactic will accomplish the goal?

I can envision situations in which an “all in” investment makes sense- disease eradication pops to mind.  However, I can also imagine funds with goals that lend themselves to existing in perpetuity: empowering girls and young women as an example.  The most interesting cases may be foundations with missions and strategies that fall cleanly into neither category.

Working in an organization that supports economic development in a specific geographic area, I can envision an approach that both spends and saves.  We might invest 3 million dollars from the endowment in an investment fund here, invest a million in an innovative business concept there, make grants to our communities to support their economic development projects.  All of this, while at the same time sitting on funds with an eye for next year’s or next decade’s opportunities.

Perhaps not as clean as a 20 year drop dead date or fattening up that endowment but the environment in which we live isn’t always neat and clean either.  And shouldn’t it really be about what we’re trying to accomplish?

links for 2007-11-20

November 20, 2007 – 12:24 am

Foundations Should Be More Like Public Companies

November 19, 2007 – 4:04 pm

This entry to the One Post Challenge comes from Dahna Goldstein. Dahna is the Founder of PhilanTech, provider of the PhilanTrack online grants management system for foundations and nonprofits.  Prior to starting PhilanTech, Dahna worked for venture philanthropies and as a producer of interactive eLearning programs.  She is a member of the board of the I Do Foundation.

By Dahna Goldstein

Thank you for issuing this challenge.  I’ve been thinking about these issues for a while, and haven’t been able to make the time to write frequently enough to warrant my own blog.  This challenge provided just the push I needed to start writing.

Foundations should be more like public companies.  Now before you start arguing that foundations aren’t and shouldn’t be like public companies at all, and before you quickly point to Enron to make your point, let me say two things: (1) the point of the One Post Challenge is to encourage conversation, and (2) I’m going to amend my statement slightly – foundations should be more like good public companies.

If you’re still reading, you either like a good fight, or perhaps you think there might be something to this comparison.

In the interests of time and blog post length, I’m going to limit my comparison to three areas: public disclosure, customer service, and shareholder vs. stakeholder responsibility.

Public disclosure: Public companies are required to make not only quarterly and annual disclosures to the SEC, but also to report any material information.  If they disclose good news, they are rewarded for it (generally in the form of an up tick in stock price).  If they disclose bad news, they are frequently judged by how well they react to and resolve issues.

Where’s the parallel, you ask? Well, it’s not perfect, but it’s something like this: foundations are required to file 990 PFs with the IRS, but they should disclose more material information – and disclose it more broadly.  What made a project or grant successful?  What elements of the foundation’s grantmaking or of the grantee’s program are replicable and could be reproduced with similar success in another community, for example?  Equally, if not more, important is sharing failures.  Some foundations (notably the Irvine and Hewlett Foundations) have begun to do that, and they should be applauded for those efforts.  They should also be emulated.  By sharing failures and the causes of those failures with the philanthropic community, foundations can help ensure that bad projects, bad initiatives, and (dare I say it?) bad nonprofits aren’t repeatedly funded only to generate the same bad results.  On the flip side, they can help magnify the impact of good projects, good initiatives, and good nonprofits.

Customer service: A good company has good customer service.  It’s really that simple.  Companies need customers.  A company with bad customer service loses customers as soon as there is a substitute product available.  You might argue that foundations don’t have customers.  That perception is a fundamental problem with philanthropy in this country.  Foundations are seen – by both the foundation and the nonprofit – as sources of funding, not as service providers.  Yes, nonprofits need foundations.  But foundations need nonprofits, too.  Funding nonprofits (or, more broadly, funding philanthropic and charitable activities) is foundations’ raison d’etre.  It is in exchange for that obligation that foundations, charitable trusts, etc. are entitled to be tax exempt organizations.  Foundations need nonprofits – and need happy nonprofits – just as much as corporations need happy customers.  Grants are a product of philanthropy, and nonprofits are the customers.  I don’t know too many nonprofits that would switch to another foundation because of bad customer service, but that doesn’t entitle foundations to deliver bad customer service.  Some foundations have started to be more responsive to their customer base, as is evidenced in things like the Center for Effective Philanthropy’s Grantee Perception Reports.  More foundations need to get on this bandwagon.

Shareholder vs. stakeholder responsibility: Companies have faced significant pressure in recent years to be accountable not only to their shareholders (by maximizing shareholder value) but also to their stakeholders – including their employees and the communities in which they operate (by acting in socially- and environmentally-responsible ways).  Many in the philanthropic sector would no doubt agree that corporations should be socially and environmentally responsible.  But what does this have to do with foundations?  Like public companies, foundations have “shareholders” – their donors (living or not) and their boards of trustees.  But they also have stakeholders – members of the communities in which they operate, and society at large.  Foundations have a duty to be responsible actors in society, and that has to go beyond simply making grants.  This responsibility is heightened when one considers the tremendous public trust that is invested in the success of foundations by virtue of their tax exempt status.  Foundations should contribute to growing the field, to building on past successes and failures, to sharing those successes and failures so that others can learn from them, build upon them, and ensure that the public trust is honored.  Foundations collect vast amounts of information about how pressing social issues are being tackled – most foundation grants over $10,000 require the grantee to at least submit a year-end report.  Those reports, if used well – and if shared with others – could provide significant insights into what is working and what isn’t in addressing social issues.  Sharing that information could not only help funders to learn from other funders (from their successes and their failures), but could also help nonprofits learn from other nonprofits.  Who else is addressing a similar issue?  What is working for them?  What isn’t?  What lessons can be learned and applied to the problems a given nonprofit is facing and to the social issues it is trying to address?  By not sharing candid, detailed feedback about funded programs and grantmaking initiatives, foundations are violating their stakeholder responsibility.  Good public companies are now acknowledging that maximizing stakeholder value should be pursued alongside maximizing shareholder value.  Foundations should, too.

So what do you think?  Should foundations be more like good public companies?  If you don’t buy the comparison, why not?  If you do, are there other areas in which you think foundations should be more like good public companies?

links for 2007-11-19

November 19, 2007 – 12:18 am

A Shout-Out to Youth!

November 18, 2007 – 5:23 pm

This entry to the One Post Challenge comes from Jamie Kong. Jamie is the Program Coordinator for YouthChoose, a DonorsChoose.org Youth Philanthropy Program.  DonorsChoose.org is a nonprofit website that connects individual donors with teachers requesting materials and experiences their students need to thrive in the classroom.  When donors entrust large donations to the YouthChoose program, youth in the program have the opportunity to reflect on their own educational experiences and decide together how these funds can have the greatest impact on public school classrooms through the DonorsChoose.org website.  In this way, YouthChoose offers young people, who are often the beneficiaries of philanthropy, the chance to become philanthropists themselves.

Jamie Kong

A shout-out for youth.  They are the next generation of philanthropists.  It’s young people who are on MySpace, Facebook, Friendster, Xanga, and are the segment of the population that is the most comfortable with blogging.  And it’s young people who will direct the future of philanthropy.  So, wouldn’t it be great if we could connect youth with the conversation that is happening here?

Reading the “$500 for Your Nonprofit” post got me thinking.  The beauty of this post is that it opened the conversation to everyone and gave everyone a chance to participate—even without a new idea to introduce.  It invited people who may not have their own conversation starter to join the discussion.

So, I would like to start a post for youth philanthropy.  If are a young person, share the issues you care about or your experiences with philanthropy. If you work with youth, share any ideas to increase youth engagement in philanthropy.  And if you don’t belong to either of these groups, share how your experiences as a young person informed your decisions about philanthropy today.  The sharing of experiences can be as catalytic as the sharing of ideas.

When Technology Trumps Philanthropy

November 18, 2007 – 5:11 pm

When Technology Trumps Philanthropy

This entry to the One Post Challenge is from Valerie, an Alumni Relations Associate at a major university.

By Valerie.

Gone are the days of keeping track of donors on 3 x 5 cards and marking return envelopes on the side with a red swipe of the marker to know that it is the “ABC” appeal (although I heard someone say nary a year ago that they did that!).  Computers are here, we have databases, printers, the web and the ability to track, analyze and reach people in ways that were not possible a decade or more ago.

Yet, I find that with all this technology, if the IT department is left in the driver’s seat, it can hinder marketing efforts rather than help them.  What is “convenient” or makes sense technologically is not always best for Development or – more importantly – the donor.

Two examples have happened recently that illustrate this constant struggle.

In every online marketing class I have taken, it has been emphasized that the donor must be engaged to, well, DONATE first before asking them all sorts of superfluous questions such as “How did you hear about us?” “When did you graduate?” “Does your company have a matching gift program?” and so on.  Therefore, when I redesigned the online giving form for simplicity, I asked the donor for their amount and credit card information first.  Once this has been entered, they are much less likely to disengage – they will fill out the entire form.  (I also reduced the number of overall questions from the previous form.)

Scrolling endlessly is also a no-no, so page 1 is money – amount, credit card – & fund designation, page 2 (next) is donor name, & contact information (next) and page 3 is extras that few people fill out, such as matching, tribute, etc. (submit).

I’ve been informed by the IT department that our particular software doesn’t like placing the credit card information on page 1, so they’d prefer to move it to page 3.  It CAN be on page 1, but it’s DIFFICULT to do, so they’d prefer that each of my online donor forms just have it on page 3.

I’ve explained my reasons, but have been told that “the programming/software makes it difficult…”

Likewise, a different IT person doesn’t care for my requests for multiple redirects (which goes to these many forms).

So that I can track responses to multiple appeals, I have asked for redirects such as

www.company.org/donate
www.company.org/contribute
www.company.org/scholarship
www.company.org/stock
www.company.org/alumni
www.company.org/future

I have been told that this “has to stop” because “it’s creating too many folders” on the website.  The alternative I was given is that I could have as many redirects as I want…under one folder: the “Donate” folder, which would give me the following options:

www.company.org/donate/(appeal1)
www.company.org/donate/(appeal2)
www.company.org/donate/(appeal3)
www.company.org/donate/(appeal4)
www.company.org/donate/(appeal5)

When I tried in vain to explain that it has to be “marketable and memorable” to the donor and can’t go on and on, I was informed that “We can’t have this many folders on the website.”

So, accommodating the software’s preferences appears to trump the donor’s preferences?  This is how we came up with voicemail that says, “If you want ________, press eighteen…”

links for 2007-11-17

November 17, 2007 – 12:19 am

One Word. Don’t Think. Just Write.

November 16, 2007 – 9:15 am

This One Post Challenge entry comes from Samantha Beinhacker. Among her many passions, Samantha is working on a project called the Story Index as an attempt to create a Rosetta Stone between all the nascent exchanges, rating agencies and analyst groups that are arising, trying to determine common denominators of the value of “businesses doing good” that are best encapsulated in narratives. See the project’s blog for more info.

By Samantha Beinhacker

One Word. Don’t Think. Just Write.

The philanthropic landscape is littered with remnants of failed attempts to quantify the impact of nonprofits’ activities. High-impact models, quantitative measures, improved business management– these are just some of the tools bandied about. Much has been written about the failure of these systems to adequately capture and track the cumulative value of resources for good; and worse, the harm they can wreak on social change efforts.

How about envisioning a new way of doing this: using words rather than numerics to understand core competencies and stakeholders’ perspectives about value and impact?

If you could express in one word the impact of your most treasured nonprofit or mission-based social enterprise, what would that one word be? Write that one word down in the comments section below. And then start composing your impressions of that word– the meanings they connote for you. You have sixty seconds to write about it. Don’t think. Just write.

links for 2007-11-16

November 16, 2007 – 12:22 am