I Beg to Differ

I take a back seat to no one in my admiration of the Nonprofit Finance Fund, so it pains me to dissent from Rebecca Thomas’s thoughtful article, "New Ways to Rate Charities Don’t Help Donors Make Smart Bets," published in the Chronicle of Philanthropy, but dissent I must.  The simple answer to her important questions – “So why the rush to rate and rank? Why not provide information and let donors decide?” – is that donors aren’t willing to wade through unprocessed information about nonprofits to make more informed decisions about which charities to support.  Given the choice between making steady improvements in sites like Charity Navigator and continuing to leave donors without any meaningful guidance about which nonprofits are most effective, I’ll take better rankings every time.

First, a disclosure:  I've been both a consultant to Charity Navigator and a member of its Advisory Panel that's helping CN enhance its rating methodology.

Second, the disconnection between performance and funding is one of the most significant problems facing the nonprofit sector.  We urge charities to undertake the difficult and expensive work of measuring and managing their performance, knowing all the while that doing so is likely to have little or no effect on donor support.  Why?  Because, as Hope Consulting’s research shows, donors don’t look for or use performance information.  Why?  Because it’s not available in a form that’s useful or convenient to them.  Lecturing donors about how they “should” evaluate charities, as so many articles (particularly at this time of year) do, is no way to help donors become more thoughtful philanthropists.

In a recent New York Times column, Nicholas Kristof offered what seemed like sensible advice for holiday charitable giving:  “donations could accomplish far more if people thought through their philanthropy, did more research, and made fewer, bigger contributions instead of many small ones that are expensive to handle.”  He’s right, of course, but his sound advice is virtually impossible to follow.  For most donors, there’s no simple or direct way to find which charities do the most good.  As a result, charities that don’t accomplish measurable objectives can still attract funding from uninformed consumers simply by telling engaging anecdotes.

I don’t agree that “it is far from clear that the new systems are any better than the ones they seek to replace.”  Clearly, Charity Navigator’s evolving methodology is a major advancement in thoughtful analysis.  Another pioneering site, Philanthropedia, is presenting donors with a tremendously helpful tool.  And I would argue that sites like these are doing exactly what Ms. Thomas suggests they do:  “provide donors with a truly meaningful blend of information about an organization’s leadership, direction, revenue model, capital needs, and program results.”

Critics of new rating sites fail to recognize the importance of providing mass-market information tools.  Millions of donors are donating billions of dollars to more than 1.5 million nonprofit organizations with almost no idea of how well the charities are run or what they accomplish.  In such a crowded market, highly-effective nonprofits are not rewarded for strong performance because, for all practical purposes, donors have no way to find such organizations.  The haystack is too big and the needles are too few.

Respectfully, it is no answer to say that donors should “take the time to do a comprehensive analysis of the context, risk, and opportunities facing each nonprofit.”  Perhaps they should, but they never have and they never will.  Nor can we accept that “a sophisticated consumer will look beyond a simple rating and ask data-driven questions about a broad range of ingredients that lead to success in achieving an organization’s mission.”  There are no such consumers.  Foundation program officers and the skilled professionals at places like GiveWell, SeaChange and New Profit certainly go to those lengths, but ordinary donors who provide 75% of the total donations in this country do not.

Ms. Thomas makes legitimate points about selection bias and disclosing expert affiliations.  But I think she goes too far in claiming that new standards of “cost effectiveness” and “financial sustainability” are “arbitrary, inconsistent and misleading.”  They’re not perfect and they’re not as rigorous as full-blown due diligence, but they’re vast improvements over the information donors have now.  The added value of the new ratings far outweighs their shortcomings.

Ms. Thomas urges Chronicle readers “to be mindful of the many highly effective nonprofit groups we may overlook in the process.”  The fact is that existing information about nonprofits systematically overlooks virtually all highly-effective charities.  For the first time, the emerging wave of new rating sites is likely to make it much easier for donors to find and fund charities that they think produce the most social impact.  If so, performance-focused nonprofits will finally have genuine financial incentives to publish meaningful and reliable information about their actual accomplishments.  And donors can decide for themselves whether they wish to continue to support charities that are unable or unwilling to do so.