Monday, April 27, 2009

A Blog on This Blog

For about ten months now I have been blogging here on at least a weekly basis, usually on a Monday morning. You may have noticed that for the first time last week, there wasn't an entry. Due to the many goals we have set for ourselves as an organization, I will be blogging a bit less often.

Since my blogging may not be as predictable, I recommend that if you haven't done so already, you subscribe to this blog (see the right hand column, under the advertisement). In that way you will be notified whenever we make a new entry. Also, you can catch my daily observations on Twitter (kenscommentary).

As always, if you have suggestions for what you would like me write about, please let me know.

All the best,

Monday, April 13, 2009

Charity Navigator's 7 Year Anniversary - Looking Inward

As noted last week, on the anniversary of the launching of our web site (April 15, 2002) it has been a tradition for us to either reflect back on the past year or forward on the year(s) to come. This year, we do both. Last week we reflected outward on the charitable sector as a whole, this week we reflect inward to Charity Navigator itself.

Last year, we did not write an anniversary article because Charity Navigator was looking for a new President & CEO. So I will take a two year look back. Perhaps the most significant event occurred in November of 2007 when Charity Navigator, a private foundation at the time, filed with the IRS to become a public charity. As a result, we are now in what is called the five year advance ruling period and hope to be permanently approved by the IRS in November of 2012. One of the key changes this entails is that, whereas in the past we relied almost entirely on funding from our founders – the Dugan family – we now intend to rely upon a much more diverse array of funders. Consequently, last November/December, for the first time we reconnected on a large scale with donors and asked all who had been so generous with unsolicited gifts in the past to consider giving again. The response was tremendous! We were greatly heartened and encouraged by the enormous increase in donors to Charity Navigator as a result of the mailing. We will still need more to join us but the message is clear – many of our users understand the cost of objectively analyzing data on over 5,000 charities a year and our critical importance in helping them to make wise giving decisions.

You may have also noticed that for the first time, we are accepting paid advertising on our web pages. These ads are increasingly catered to our users’ interests. Since we are unique among our peers, in that our services are completely free to both donors and charities that use our seal, we hope that strategies like this will help us to continue to operate at no cost to our users. In addition, we will be asking foundations and corporations to play a much bigger role in supporting us. Of course your voluntary individual donations will remain critically important too![1] In spite of the anticipated decline in funding of charities during these challenging economic times, we believe that donations to Charity Navigator will increase because of our vital role in assuring that every penny you donate to charities counts. In fact, we think we are needed now more than ever! We also encourage you to give us your suggestions for ways to raise the funds we will need to do even more to accomplish our mission to help donors make wise giving decisions.

Our transformation into a public charity also means that we intend to “walk the walk” and not just “talk the talk” about what it means to be a four star charity. We are in the process of implementing a wide variety of good practices here at Charity Navigator, that we believe all charities should follow. We are also seeking to transform our evaluation system of charities to include two additional dimensions (beyond financial health) – accountability (including transparency)[2] and outcomes.[3] You will continue to hear about these components of making wise giving decisions in the months ahead.

In conclusion, Charity Navigator arrives at its 7th anniversary with great optimism about the future. In spite of all of the bleak predictions in our top ten list[4], the heart of the charitable sector remains strong. The American people give more than twice as much to charity each year as people in any other country in the world. We also break the record for the percentage engaged in volunteerism with over 61 million of us pitching in. Based on all of this time and treasure that is poured out of the hearts of so many, we know we will weather the storm together and continue to do great things. We look forward to staying in touch as we go down the road.

[1] Click here to learn more about donating to us.
[2] We intend to add information on accountability and transparency issues by the end of the year. I have also written on this topic here – A Tale of Two Nonprofits and Moscow Conference: How Does a Nonprofit Become Trusted?
Two blog entries on the topic of outcomes so far – A Measure of Outcome and A Scary Finding on Outcome Measurement.
Predictions for the Year(s) to Come

Monday, April 6, 2009

Predictions for the Year(s) to Come

Every year, around the time of the anniversary of the launching of our web site (April 15, 2002) it has been a tradition for us to reflect on the charitable sector. Looking at the sector as a whole, there are a number of issues that we believe will become increasingly important in the coming year(s). Since we favor top ten lists, I have limited myself to that many. They include:

1. Increased Funding by the Federal Government – This prediction may appear obvious, but the consequences may be less so. Currently, all levels of government (federal, state and local) provide approximately 40% of all funding to charities. Thanks to the economic stimulus package we anticipate this percentage will rise. As a consequence, charities will become more dependent upon what is arguably the least efficient form of funding for them (pays for less than half of a typical charity’s infrastructure costs, while imposing the most onerous reporting requirements).[1]

2. Decreased Funding from Other Sources – Most foundations have seen a major drop in their investments. Most corporations have seen a major drop in their profits. Most individuals have also seen a sizable drop in their net worth. All of this adds up to less money to be given to charities. That is about 20% of all funding to charities (individual, foundation and corporate giving combined). The other 40% (after 20% from private contributions and 40% from government) or so comes from fees for services. This too will suffer as people have less money to buy services (such as tuition, health care, etc.). The only good news here is that individual giving is somewhat recession resistant. In other words, people will give less, but still more than you would expect in bad economic times.[2]

3. Rising Demand for Charities to Provide Information on Their Impact – We estimate that about 10 to 20% of charities are measuring their performance. However, perhaps as few as 2% are not just measuring, but actually showing objectively measurable impact (aka middle to long term outcomes, in our preferred terminology). As money becomes harder to raise, the few who can show their impact will be rewarded and the rest will feel increasing pressure to go down the outcome measurement road. We think this is a VERY good thing to happen!

4. Mergers, Program Closures and Layoffs – Professor Paul Light at NYU has estimated that, due to the economic crisis, approximately 200,000 charities will have to close their doors. We hope that, even though you can’t normally get a Golden Parachute, charity leaders will consider the options of mergers more seriously. Foundations can lend a hand here by funding the costs of mergers. Meanwhile, we have already begun to hear reports around the country of agencies laying off staff, closing programs or closing entirely. We agree with Professor Light that there will be more and probably many more closures. The small silver lining in all of this is that some inefficient charities may go bust or will be acquired by their more efficient peers.[3] However some of the good guys are going to close down too.

5. Scandals As Always, Only More So – The charitable sector is estimated to be around $1.5 trillion in annual revenues. When that kind of money is involved, bad people will inevitably do bad things. The governmental entities that are responsible for policing the sector are understaffed. The regulations available to them are often inadequate anyway. Scandals will continue to bubble up.[4] A bad economy may only increase the reports of scoundrels who line their pockets by perpetrating scams. Since there is not as much revenue to sustain things like Ponzi schemes, more of the scoundrel charities will go bust and hit the front pages. Whereas it is good news that more of these jerks will be found out and charity Board Members may become more vigilant, it is bad news as it further weakens the public’s trust in the charitable sector.

6. Charities Having Problems Filing the New IRS Form 990 – It is estimated that the new IRS form 990, which larger charities must complete on an annual basis, will require 5 times as long to complete. It will entail involving more staff and consultants in completing the form, since the charity will be reporting on entirely new dimensions of their work (governance matters, etc.). We anticipate that many charities will file for the maximum extensions and still get it wrong the first time they fill it out. They will then be required to resubmit the document, causing further delay. As a result, the problem of a lag of time before a charity’s IRS information report becomes publicly available, will only increase. The good news is that this additional information will shed more light into the operations of the larger charities and thereby increase accountability and transparency.

7. A Greater Divide in Opinion Over the Role of Government in the Charitable Sector – As the federal government grows larger and (as noted above in item 1) becomes an even larger funder of certain types of charities, the debate over the role of government in the charitable sector will increase. Since charity staff leadership are predominantly liberal leaning, some of the criticism may be muted (as was the case with the proposed reduction in the charitable tax deduction for the affluent). However, many charity Boards are made up of more conservative individuals. In addition, some participants in the sector (such as those who are managing donor advised funds) have interests and perspectives that are more independent of party affiliation and therefore are likely to increasingly raise the question of what type of role the government should play.[5]

8. Arts, Humanities and Cultural Charities Take A Beating – This category of charities is already starting to implode. We are seeing more reports of bankruptcies, layoffs and cutbacks in this sector than any other. They rely to a great degree on donations from the affluent and from fees for services. When people must chose between them and other types of charities, they often are low man on the totem pole. Hence, they will take a beating.

9. Health Care Charities Remain King of the Hill – We have noted before that approximately 60% of that $1.5 trillion in revenues goes to health care charities. Add to that, the plans for universal health care and over $600 billion in the stimulus package for this purpose and you can see how they are king of the funding hill!

10. Religious Charities Remain Strong – Religious charities get the largest share of private contributions (over $100 billion of the $306 billion total in 2007). As noted in item 2, individual giving is recession resistant. Furthermore, as I have noted elsewhere, I believe in the hierarchy of giving, people prioritize religious charities (especially houses of worship) first. Therefore, I believe they will endure best in these challenging times.[6]

[1] A Horrible Idea From the Obama Administration. The second paragraph of my reaction in item 2 focuses on government funding and its problems.
[2] Is Giving Recession Proof?
[3] Good News in a Bad Economy
[4] Tales of the Dark Side and Ten Ebenezer Charities
They Don’t Know What We Got
[6] Is There A Hierarchy of Giving?

Wednesday, April 1, 2009

Don't Be A Fool

(Guest Blog- Sandra Miniutti, Vice President, Marketing, Charity Navigator)

I used to celebrate April Fool’s Day, with a slew of other volunteers, by participating in the "Don't Be a Fool, Do Breast Self-Examinations" awareness campaign. As far as I know, this program, designed to encourage women to perform monthly breast cancer self-exams, no longer exists. But I was thinking it about it last week when I came across a news item about one of my pet peeves --- the proliferation of breast cancer charities.

With virtually no barriers to entry, the nonprofit marketplace has ballooned to over 1 million organizations. A search for breast cancer charities yields more than 1,000 entities. Thus there are many breast cancer charities offering similar or duplicative programs. And, even if each of those charities spends just 25% of its budget on overhead and fundraising, I would argue that more progress could be made towards treatments and a cure (spending on programs) if there were less organizations (less spending on admin and fundraising).

More than 50 charities offering breast cancer related services have come together to address this issue. They’ve formed the Breast Health Collaborative of Texas with the commendable goal to reduce duplicative and less effective programs and to find ways to collaborate on programs and fundraising to improve access to breast health care for low-income and uninsured women. Getting these nonprofits to drop their competitive stance and work together is no small task. But they already report some programmatic success and have captured the attention of at least one funder, the 4-star Susan G. Komen for the Cure.

On this year’s April Fool’s Day, I hope you’ll agree that it is encouraging to know that some breast cancer charities have put the “Don’t Be a Fool” message to into practice and are striving for better efficiencies and service.