10/23/2013 01:36 pm ET Updated Jan 23, 2014

Charity Navigator's Focus on Results Isn't a Slam Dunk

Charity Navigator, a web site that provides potential donors with a way to evaluate in which nonprofits to invest, has announced a shift in how it will evaluate nonprofits itself. In addition to looking at the ratio between program and overhead investment, they plan to provide "results reporting."

Some nonprofits are up in arms over whether such reporting will be fair and sufficiently nuanced. As reported by NPR, Charity Navigator CEO Ken Burger, in turn, is taking a shot at the complainers, saying,

'You're not measuring what matters most,' 'You need to evaluate us on our results.' That's what we were told until 2011. Now that we've got this, now we're being told, 'No, wait. It's too hard; it's too complicated; it's too expensive.' It's this, that and the other thing.

Burger's mocking tone aside, both arguments are correct. It is better to look at efficacy than at overhead. Until we develop both patience and a more nuanced understanding of what is effective, however, Charity Navigator still does run the risk of helping potential donors consider the wrong things.

To begin, I'd love to kill the "overhead" debate once and for all. For the unannointed, the overhead debate asks what percentage of a nonprofit organization's budget should it reasonably be allowed to spend on overhead rather than directly on programs? Donors push that number way, way down. Usually, the acceptable range is somewhere between ten and twenty percent.

I understand why people consider overhead. Nonprofit work is, at best, art mixed with science. It's hard to know what works, especially when tackling complex problems such as generational poverty. A low overhead number gives donors -- especially those who still believe nonprofits are run by do-gooders who don't manage well -- some sense of confidence that their money is being used responsibly and as intended.

Here's the problem -- this downward pressure starves organizations and thwarts innovation. Would you ever tell a for-profit company that under no circumstances should it invest more than ten percent of its budget on marketing, branding, corporate social responsibility, employee development, general plant and equipment and research and development for innovation? Even twenty percent? That would be nuts.

Winston Churchill once referred to democracy as the "worst form of government except all the others that have been tried." The overhead number is a bad proxy for efficacy and impact. People latched onto it, though, as the best we had.

Kudos, then, to Charity Navigator for listening to the nonprofit sector when it asks to shift the focus to what works.

One can understand Ken Burger's frustration at getting pushback from the nonprofit sector for the change. He certainly has made his displeasure known. The title of his 22 October blog on the Charity Navigator web site, which refers to this issue, is "A Whole Lot-a Baloney in that Sandwich."

Here's why I get the other side, too, though, as should Ken Burger. Efficacy is complicated. It takes time. It requires considering outcomes that are incredibly hard to measure. How does one demonstrate clearly "reduction in the impact of trauma" for example? In community change work that focuses on neighborhoods in poverty, we're learning that impact comes after a long period of building both trust and reciprocity. What's the simple metric there?

Nonprofits are, indeed, beginning to develop fantastic metrics. One can combine changes in measurable behavior, with self-reporting, with qualitative judgments of those involved in the work, with customer/client satisfaction numbers, to get at real outcomes.

What you can't do is boil that down to a simple rating, ratio or number that communicates effectively on a web site. You often can't show changes in it year over year. Indeed, you might not be able to show change at all for a decade or a generation in some cases.

Further, good evaluation takes money, which is next to impossible in a low-overhead environment where donors want all their dollars to go straight into programs. Need client feedback for the measurement? Sometimes you can't get it, or at least not easily in cases of trauma, or where clients quickly disperse and can't be followed, or where there is need for anonymity in order to deliver quality supports, to name a few.

This is not a quarterly, or even yearly, earnings report. If we try to make it such, only those organizations delivering short-term results in fields with simple interventions will get the money. The gnarly problems will go on undisturbed.

Good for Charity Navigator for focusing on results. Bad for nonprofits if we end up boiling those results down to a template that encourages philanthropy to act like an on-line purchase.

Everyone has more work to do.