Monday, October 26, 2009

Why Should Donors Care About Outcomes and Impact?

We announced in December of 2008 that it is our intention to modify our system of evaluating public charities to go beyond matters of financial health and assess the outcome indicators (and more broadly, the potential to create social value through high performance) of the nonprofits we look at. The reaction we have gotten to this goal has varied widely from thumbs up encouragement to mission impossible skepticism. We expected all of that and are up to the challenge, thanks to the help of many experts who have been working diligently in this area for years. However, one reaction we have gotten from a number of experts has baffled me, “What makes you think donors care about outcomes or impact?”[1]

My first reaction to this question is, “Are you serious?” I have worked in the nonprofit sector for over 25 years and have related to all kinds of donors over that time. It has always been evident to me that they generally assume that the nonprofits they support are having good results. The fact that this assumption may be inaccurate has never occurred to most of them. However, if I said to them, “Did you know that perhaps 98% of all the nonprofits out there can not definitively show that they are having a meaningful impact?” I am certain it would blow their minds and they would join the chorus of those who call for more deeply measuring the effectiveness of all nonprofits.

Of course I realize that people give to (as opposed to invest in) nonprofits for a variety of reasons from the school or church they attend, to a request from a friend, to an emotional connection after hearing a compelling story about someone who has been helped by a nonprofit. Nonetheless, we at Charity Navigator know quite well that there is a real hunger for objective information and digging deeper. Why else would 3 million people a year visit our web site, which is largely a database that evaluates the financial inputs and sustainability of nonprofits? Furthermore, with all of the nonprofits scandals over the years, public cynicism has risen dramatically. There has also been a dramatic rise in the use of the internet to learn more about nonprofits people have an interest in. All the evidence we see shows that objective data on nonprofit performance is needed and desired now more than ever.

So, why should individual donors care about social impact? First of all, so they can become social investors (donors with their eyes wide open in that they base their decisions to support a nonprofit on more objective evidence of high performance that can result in creating social value). Secondly, in these tough economic times, there is less money available for individuals to invest in the causes they care about. Therefore, it is critically important that this smaller pie of money goes to those organizations that can actually show meaningful and sustainable results! It seems like a no-brainer and common sense to me. I have a firm belief that the average individual donor/social investor has common sense too! Therefore, the question I have for the experts who ask about this matter is, “What are YOU doing to educate donors to how centrally important outcomes and impact are?!”

[1] For an organization to show that it has provided “impact” it must be able to rule out all other variables that could have caused the social benefit. Therefore, since most nonprofits will never have funding for randomized control studies and the like, we intend to focus on evaluating nonprofit outcome indicators and other evidence of high performance.

Monday, October 19, 2009

Navigation Advice for Readers of the Book - Spirit of Service

This is a reprint of an essay written for the web site

On behalf of Charity Navigator, I was proud to have participated in the review of the Money section of the book Spirit of Service. We believe that the book can open the door of your heart, into new worlds of service to others. It is a good place to begin, renew or expand what we hope will be a fulfilling, life long journey for you to help others and our world. However, before you walk through that door of service, we have some advice for you to consider.

Sometimes a charity can provide you with a compelling story about what they do, but there may be little more than that when you look deeper. In other words, they have little or no evidence that they are truly helping others. Worse still, some charities may be helping themselves or their leadership, rather than others! The many scandals that have occurred in the nonprofit sector are a testament to the fact that you need to use your head and get the facts, so that your heart is not broken in the process of trying to help others. The authors of Spirit of Service have done some checking to reduce the chance of these problems, but you should still conduct a little due diligence of your own when deciding which charities deserve your support.

If you find a charity in the book Spirit of Service that you are thinking of supporting with your time or treasure, we recommend you look at three critical dimensions of the organization before you act:

  1. Financial health –If a charity is not financially strong, how can you be certain it will be there for the long haul? Consult for free ratings of the financial health of 5,500 charities or use our link to the Foundation Center to obtain copies of the IRS form 990 for charities we do not yet rate. We also provide a guide for how to interpret them. The 990 provides a wealth of knowledge, including executive compensation, what types of expenses the charity is incurring, and what kind of assets the organization has on hand.
  2. Accountability – The best charities are transparent and accountable to the public. You should be able to see evidence of this in the information they provide on their web site. For example, do they provide a link to their financial audit? The media can also be a good watchdog in this area - providing reports on charities that have been found guilty of a crime or are under investigation - so check our News Feed tab for each charity you are considering or check for this info on sites such as Google News. The media also can help you learn about the accomplishments of a noteworthy charity (see #3). Remember, even if the finances and outcomes look sound, questionable accountability can be a warning sign of disaster on the horizon.
  3. Outcomes – Learn about a charity’s accomplishments, goals and challenges by reviewing its website, talking with staff or visiting its offices. They should be able and eager to tell you about the quality and depth of their results as well as their capacity to continue to get these results; not just: one compelling story or a count of the number of activities or people served. This is critical step. After all, the charity’s ability to bring about long lasting; meaningful change for the better in the lives of people and communities is the whole reason for your financial and/or volunteer investment.

In conclusion, we believe that if you do a little homework in each of these areas, you will find a charitable organization where your personal Spirit of Service will be incredibly rewarding for you and those served.

Tuesday, October 6, 2009

Trends In Charity Executive Compensation: Online Chat Hosted By The Chronicle of Philanthropy

Today, Ken Berger (author of this blog and president & CEO of Charity Navigator), David Samuels (partner at Duval & Stachenfeld LLP and former Deputy Chief of the NY Attorney General's Charities Bureau) and Noelle Barton (Manager of Special Projects at The Chronicle of Philanthropy) participated in an online discussion about executive pay at nonprofits. Among other issues, the conversation touched on executive perks, deferred compensation, the appropriateness of revenue sharing programs, bonuses, compensation committees and the difference between what is technically legal and what adheres to best practice when it comes to charity CEO pay.

You can read the full transcript on the Chronicle's site.