The Goldie Company

Parley: June 2008 - Issues in Philanthropy

The question: How will my nonprofit be affected by the many websites that endeavor to empower donors by evaluating charities?

Skystone Ryan’s response: These sites and services are here to stay, so wise nonprofits will learn from them and work with them. Despite their limitations, the sites encourage valuable transparency within our sector, allowing
organizations and donors alike to benefit from fuller, more thoughtful disclosure of information.

Perhaps you’ve heard: America is a nation of shoppers. Overwhelmed by options of every kind, the process of selection becomes paramount.We do our homework, take our time, do what we can to ensure that we have the safest car, the most cost-effective phone plan, and reservations at the best restaurant in town.

How do we choose? The decisionmaking process varies according to the nature of the product, of course, but always requires that we first identify criteria that are important to us. Faced not with three or four breakfast foods but with well over a hundred supermarket choices, many of our criteria are obvious. Do we want hot cereal or cold? Corn or wheat or oats? Perhaps we read the content and nutritional information on the side of the box, or recall an article touting the health benefits or hazards of one ingredient or another. Ultimately, we choose; and when the cost is low and the product inessential, we choose without great hesitation.The higher the cost and the greater the significance of the purchase, the weightier the decision, so we seek more expert guidance when purchasing a car or a mutual fund. Small wonder, then, that as charitable options have proliferated, an industry of rating and review has emerged, charged with identifying criteria and evaluating performance in order to allow each donor to make the “right” charitable decisions.

There is no question that making charitable choices is more complex than ever before. The number of nonprofit organizations nationwide is well over 1.5 million, an increase of almost 40 percent from only a decade ago. These range, of course, from complex, multi-site organizations that receive over a billion dollars in donations each year to small local groups operating on miniscule budgets. As nonprofits seek to sustain giving levels in an increasingly competitive philanthropic environment, deciding how best to allocate charitable dollars becomes more challenging for modest donors as well as for those making more substantial contributions.

A number of web-based organizations have entered the arena to help identify and evaluate criteria and consequently help donors make responsible choices.

Some are informational. These—Guidestar is the best-known—make 990s and other documents centrally available in accessible form, providing the nutritional information on the back of the charitable cereal box.

Some are statistical. The Better Business Bureau Wise Giving Alliance and Charity Navigator each evaluate the effectiveness of nonprofits on the basis of data compiled to reveal various facets of the organization, including financial accountability, program effectiveness, and fundraisingeffectiveness. In endeavoring to apply consistent criteria to the radically diverse universe of nonprofits, these systems are necessarily general, allowing only limited variation for organizations’ differentmissions, budgets, environments and histories. To further complicate the potential donor’s assessment,the evaluation templates of these and similar services can reach very different conclusions.For the organization being profiled, the complexity and sheer quantity of paperwork required forapplication can be discouraging, especially for the leanest and most program-driven.

Some are interpretive. In recent months, the philanthropicworld has seen growing interest in lessobjective, more interpretive evaluations that placegreater emphasis on mission and results. Institutions as diverse as the Urban Institute, The Center for High Impact Philanthropy at the University of Pennsylvania, andprivate groups like GiveWell and Great Nonprofits seek to shift the focus from how nonprofits operate to what they accomplish. While the approaches vary from statistical to narrative, from prescriptive to analytical, the purpose in each case is to ensure that the donor gets maximum impact from each charitable dollar.

As nonprofit leaders, how do we respond to this increasing scrutiny? A nonprofit organization is not—to state the obvious—as simple to assess asa box of breakfast cereal. How can the same criteria be used to evaluate a well-endowed major university and the food pantry in the basement of the church down the block? Accountability is a goodthing, but one-size-fits-all is clearly inappropriate for a sector as diverse as ours. It is important toacknowledge that not every successful, ethical, impactful nonprofit will receive a perfect report card from one of the national organizations we’ve mentioned, nor even from a local equivalent.Many are simply too small and understaffed to complete the necessary paperwork. Others are entirely local in scope, and confident of the commitment of core constituents, so that the approval of an outside body seems unnecessary. Still others face peculiarities, short-term or intrinsic, that make it impossible to comply with universal standards.

Even if an external stamp of approval is unnecessary or unattainable,however, we must keep in mind that every donor is a shopper. Further, in our competitive climate, every shopper is discriminating, looking for the special criteria that distinguish each organization. For some, mission is enough. Others look to geography, history, or personal contact. The proliferation of evaluation agencies and strategies testifies, however, that donors are increasingly looking for a clearheaded, businesslike assurance that their charitable dollars will be well-used.

Skystone Ryan’s advice? Spend some time reading the standardsand methodologies of Charity Navigator and theWise Giving Alliance, even if you feel your organization is too small or too local to be listed, and consider where your strengths lie. Think about outcomes, and be prepared to share results—both objective and subjective—with every interested donor.Make sure that 990s are accurate and timely; that financials are audited (or, for the smallest organizations, auditable) every year; and that the organization operates in full compliance with the Association of Fundraising Professionals’ Code of Ethics. Most important of all, proactively make this information available to every donor and friend.

Even if a charity website never leads to a new gift, the lessons of these sites are important for everyone in the nonprofit community. Every donor—even the people we know, who share our vision and believe in the work we do—is a shopper. Every donor has a right to accurate, comprehensive information, and it is our responsibility to provide it, whether through a centralized evaluation site or independently. It is up to us to ensure that every donor is confident that,by investing in us, they have made a responsible charitable choice.

Who’s Keeping Score? As the world of evaluating and grading charitable organizations is a new one, new services and new perspectives appear every day. The acknowledged leaders in the field continue to be:
www.guidestar.org provides non-judgmental information about 1.7 million nonprofits. Premium services are also available for a fee.
www.charitynavigator.org provides evaluations, based mainly on financial formulas, of 5,300 of the nation’s largest nonprofits.
www.give.org brings the Better Business Bureau’s mission and methodologies to the charitable world, evaluating on the basis of clearly defined multi-dimensional standards for accountability.

The New Kids on the Block
In response to the arguably overformulaic evaluation mechanisms of Charity Navigator and the BBBWise Giving Alliance, several organizations and services have been launched to encourage more subjective, outcome-based analyses. Among the more promising are:
www.givewell.net
www.greatnonprofits.org
www.impact.upenn.edu

Issues in Philanthropy is published periodically by Skystone Ryan Inc. for volunteers and staff of nonprofit organizations. Permission to reprint with acknowledgement is authorized. To receive additional copies or to add names to our mailing list, contact any office of the firm.
© 2008 SKY STONE RYAN INC