ProSpeak: What Americans Really Need to Know About Charities
In their 2005 Rating the Raters report, the National Council of Nonprofit Associations and National Human Services Assembly found that, "some of the organizations that rate [charitable nonprofit organizations] use their ratings as a critical component of their own revenue model (e.g., to generate membership/subscription fees, licensing fees, report fees, Web site advertisements), which leaves open to question whether they are motivated to inform donors or whether they are motivated by media attention that improves their revenue stream."
Part of the problem lies in the fact that media attention fuels revenue for these groups, and negative assessments of charities garner the most media attention. This inherent conflict of interest might explain why their evaluations are anywhere between subjective and contradictory.
Whether these organizations are well-intentioned in their desire to evaluate charities or hamstrung by the inherent conflict of interest, they nonetheless are ineffective because they ignore the vital yet complex area of program evaluation.
So, what's a donor to do?
The heart of the problem is that many self-appointed charity watchdog groups (and sometimes even the news media) are looking for a silver bullet: one statistic that is easy to calculate and can rate a charity as good or bad. As a result, they've become obsessed with the easiest ratio to calculate: the percents of revenue an organization spends on program, management and fundraising. Their simple reasoning is that the more a nonprofit spends on a program, the better it is.
While efficiency is indeed important, it pales in importance next to effectiveness. As Dan Pallotta wrote in a June 22 post titled "'Efficiency' Measures Miss the Point" on his Free the Nonprofits blog at HarvardBusiness.org, "In 1995, Physicians for Human Rights had revenues of approximately $1.3 million. They spent approximately $750,000, or 58 percent of revenues, on program. Today that organization would fail all of the watchdog standards for 'efficiency.' It would be ineligible for a BBB Wise Giving Alliance seal of approval. The Nobel Peace Prize committee felt differently. Physicians for Human Rights won the Nobel Prize in 1997 for its work as a founding member of the International Campaign to Ban Landmines."