Informing Donors About Nonprofit Performance

Now, Charity Navigator has the opportunity to catalyze demand for much more meaningful information about outcomes. Asking for and publicizing a nonprofit's progress in meeting its goals has the potential to turn donors' attention from inadequate financial ratios to actual accomplishments, increasing demand for social impact. It should give nonprofits a greater incentive to strive for greater impact and track accomplishments. Charity Navigator is likely to be most successful if it collaborates with Guidestar, GiveWell, GreatNonProfits, the BBB Wise Giving Alliance, foundations and others in this effort. A shared effort will reach more people--and, we hope, reduce the burden on nonprofit executives by streamlining the system.

Some argue that tracking outcomes takes money and time away from nonprofits' programs. But most of the information that donors need is just what the organization itself needs to know whether it is on course. Characterizing such information as diverting from an organization's mission is like characterizing an airline's expenditures on navigation systems as diverting from flying. That said, if we want nonprofits to measure outcomes, donors will have to be willing to let them use resources to do so. Ironically, right now Charity Navigator treats such expenditures as administrative expenses, which it counts against the organization.

Thus, while Charity Navigator's decision to incorporate outcome measures into its rating system is an important step towards the goal of turning donated dollars into the greatest possible social impact, it needs to find a way of rewarding rather than penalizing organizations for incurring the expenses necessary to acquire and provide this information.

In the next post, we'll discuss another approach that Charity Navigator could take to provide donors with meaningful information about nonprofits.