Back in December, I wrote that the one thing I wanted to know before donating to a nonprofit was whether it was achieving its goals. Since it's hard to find that information, I was happy to see that Charity Navigator is exploring how to integrate data on outcomes--progress in achieving goals--into its notoriously distorted rating system for nonprofits. This has the potential to increase the total social good produced by the sector: Rating nonprofits based on outcomes will direct more donor dollars to the nonprofits with the greatest positive impact and will encourage all nonprofits to improve their outcomes.
As Jacob Harold described last week, the current system for getting donations to nonprofits is faulty. It's usually aggressive fundraising and slick marketing rather than high impact that bring in donor dollars. If donors do look for objective information about nonprofits, they'll often find Charity Navigator and rely its financial rating, which is virtually meaningless used alone. Since donors aren't deciding where to give based on impact, nonprofits have little direct incentive to strive for great outcomes or to track what they accomplish. Charity Navigator has asked a set of nonprofits if they would provide outcome data and so far less than 10% have done so. That doesn't necessarily mean only 10% have systems to measure outcomes. But it's not a good sign.
Charity Navigator can play a big role in increasing donor demand for information about what nonprofits actually accomplish. The site's more than 3 million annual visitors--combined with its brand recognition, proactive media outreach, and sometimes-sensationalistic top-10 lists--have made its flawed efficiency rating the most popular way of judging nonprofits. The financial ratings have created demand among donors for low administrative costs, in turn forcing nonprofits to cut administrative costs or finagle tax forms. Charity Navigator has created so much demand for these financial statistics that many nonprofits even report on them in their outreach materials, creating a contagion effect.
Now, Charity Navigator has the opportunity to catalyze demand for much more meaningful information about outcomes. Asking for and publicizing a nonprofit's progress in meeting its goals has the potential to turn donors' attention from inadequate financial ratios to actual accomplishments, increasing demand for social impact. It should give nonprofits a greater incentive to strive for greater impact and track accomplishments. Charity Navigator is likely to be most successful if it collaborates with Guidestar, GiveWell, GreatNonProfits, the BBB Wise Giving Alliance, foundations and others in this effort. A shared effort will reach more people--and, we hope, reduce the burden on nonprofit executives by streamlining the system.
Some argue that tracking outcomes takes money and time away from nonprofits' programs. But most of the information that donors need is just what the organization itself needs to know whether it is on course. Characterizing such information as diverting from an organization's mission is like characterizing an airline's expenditures on navigation systems as diverting from flying. That said, if we want nonprofits to measure outcomes, donors will have to be willing to let them use resources to do so. Ironically, right now Charity Navigator treats such expenditures as administrative expenses, which it counts against the organization.
Thus, while Charity Navigator's decision to incorporate outcome measures into its rating system is an important step towards the goal of turning donated dollars into the greatest possible social impact, it needs to find a way of rewarding rather than penalizing organizations for incurring the expenses necessary to acquire and provide this information.
In the next post, we'll discuss another approach that Charity Navigator could take to provide donors with meaningful information about nonprofits.
Paul Brest
What can we do?
The best we can hope for is a system that merely supports transparency, shared access to the transactional data and tools to make sense of huge flows of data. Give more people the ability to understand trends and foster many competing analysis models. (I am thinking www.capitalwords.org, www.maplight.org or www.opencongress.org for the nonprofit sector).
We can turn our attention to the need right now and all of us focus on figuring out how to survive with a 50% reduction in our cash flows. http://nonprofitnetworks.wetpaint.com/
I always find these conversations about "measuring groups" "ranking groups" and (universal metrics) disconnected with my experiences.
We believe that there are three components to making a good giving decision - financial strength, accountability (which includes transparency) and outcomes. Our goal is to ultimately have a system that incorporates all three dimensions. We agree with you that outcomes are critically important in making a giving decision, but we do not agree that financial ratings are “virtually meaningless”! If an organization does not have strong financial health, all the outcomes in the world will ultimately come crashing to a halt if there is no money to continue. We can debate the specific financial measures to be considered, but I think to reject them entirely is to throw the baby out with the bathwater. Furthermore, we find that for the larger charities that we evaluate, on the whole the 990’s are relatively accurate. As more attention has been paid to them and we contact charities when data seems inaccurate, it has further improved the system.
I agree with you that the best model moving forward is collaboration. We have joined the Working Group for Effective Social Investing to that end. We are also in ongoing discussions with our colleagues (some of whom you mention). We will strive to continuously improve our system to incorporate all the dimensions that are important. I hope we can agree to disagree about financial ratios and work together to make the system even more on the pulse of what is important in making giving decision.
Best,
Ken Berger, President & CEO
Charity Navigator