Informing Donors About Nonprofit Performance

Feb. 25, 2009, The Huffington Post — Back in December, I wrote that the one thing I wanted to know before donating to a nonprofit was whether it was achieving its goals. Since it's hard to find that information, I was happy to see that Charity Navigator is exploring how to integrate data on outcomes — progress in achieving goals — into its notoriously distorted rating system for nonprofits. This has the potential to increase the total social good produced by the sector: Rating nonprofits based on outcomes will direct more donor dollars to the nonprofits with the greatest positive impact and will encourage all nonprofits to improve their outcomes.

As Jacob Harold described last week, the current system for getting donations to nonprofits is faulty. It's usually aggressive fundraising and slick marketing rather than high impact that bring in donor dollars. If donors do look for objective information about nonprofits, they'll often find Charity Navigator and rely its financial rating, which is virtually meaningless used alone. Since donors aren't deciding where to give based on impact, nonprofits have little direct incentive to strive for great outcomes or to track what they accomplish. Charity Navigator has asked a set of nonprofits if they would provide outcome data and so far less than 10% have done so. That doesn't necessarily mean only 10% have systems to measure outcomes. But it's not a good sign.

Charity Navigator can play a big role in increasing donor demand for information about what nonprofits actually accomplish. The site's more than 3 million annual visitors — combined with its brand recognition, proactive media outreach, and sometimes-sensationalistic top-10 lists — have made its flawed efficiency rating the most popular way of judging nonprofits. The financial ratings have created demand among donors for low administrative costs, in turn forcing nonprofits to cut administrative costs or finagle tax forms. Charity Navigator has created so much demand for these financial statistics that many nonprofits even report on them in their outreach materials, creating a contagion effect.