Tuesday, September 20, 2011

CN 2.0: More Knowledge, More Good

For almost three years now, we have been sharing our plans to change our rating system to make it more in depth. At last, the first ever fundamental change to our rating system since its launch in 2002 has arrived! CN 2.0 is the fruit of a tremendous amount of effort by the staff of Charity Navigator with the help of our Board, Advisory Panel and many other colleagues too numerous to mention. It evaluates practices that have been researched, advocated for and recommended for years by many, many nonprofit experts (here is one great example).

We believe that the end result of all of this effort is a very significant step forward in rating charities. I must admit that I assumed (as did many experts we spoke with) that adding Accountability and Transparency would not be that big a deal. After all, most of the metrics we are adding should be basic best practices that most charities embrace. In fact, we were originally debating if this new dimension to our rating system should be weighted much less than the financial metrics. However, I was so wrong! Over 40% of the charities that scored four stars in our traditional one dimensional rating system of Financial Health (CN 1.0 we now call it) are seeing a drop in their rating because they do not have some of these practices in place! Furthermore, half the charities in our database are seeing a change in their rating!

On the one hand, this is a sobering reflection of the state of the nonprofit sector. There are still many, many nonprofits that have barely started down the road to meeting best practices on governance, ethics and openness to the public. At the same time, there is some good news here. More charities saw an increase in their overall rating (30%) than those that saw a decline (19%). In addition, over 330 formerly lower rated charities are now getting four stars. Furthermore, the total number of charities with a good (3 star) or better rating increased from 61% to 69%. So there is evidence that many organizations are embracing best practices and moving toward greater transparency with their stakeholders.

We have also seen an amazing phenomena begin to happen that speaks to the leverage and impact of our rating system. During the past year we have been previewing the findings that inform the CN 2.0 rating for each charity and many of them have been responding. Especially over the past couple of months now (in anticipation of the change in their ratings), we have heard from at least a couple of charities a day informing us of improvements they have made to their practices to comply with our Accountability and Transparency performance metrics. Whole new pages are going up on charity web sites to help donors learn more about their operations (here is an example)! We are both humbled and energized by the transformation we are helping to create. More accountable and transparent operations will lead inevitably to better Board oversight and internal operations. As a result, we anticipate less ethical lapses being missed before it is too late or avoided entirely thanks to proactive policies and procedures. For our part, we will be better able to discern the good, bad and ugly among the charities we evaluate and help our users more than ever.

I can predict with some confidence what will ensue for us as a result of CN 2.0's launch. Our competitors, critics and charities who have lost their four star rating, will use this as an opportunity to poke holes in our new rating system. That is the nature of our work of course. As an outspoken watchdog that makes judgments on the performance of charities, such criticism is inevitable. Sometimes it may appear that, "no good deed goes unpunished". However, we know the "punishment" is well worth it. We also know to take the criticism we receive seriously and listen for valid kernels of truth from thoughtful critics, while not being bullied or swayed by those who tend to complain and make excuses in order to avoid striving to do better. For our part, we will do our best to listen closely to the feedback we get and continuously improve what we do. We also will always keep in mind who we are here to serve and whose opinion is of most importance - our web site users, who donate/invest billions of dollars each year in charity.

It is with great happiness and excitement that we share this new rating system with you. We know it will provide you with more knowledge to do more good. And now, back to work to get to CN 3.0!

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