The Great Ratings Debate Recap
Thanks to all of my readers, I went into the opening session at last month's FundRaising Success Virtual Conference + Expo — a debate between a nonprofit executive and the Better Business Bureau — loaded with fantastic questions and, frankly, a lot of concerns. I had 45 minutes to get at the heart of the matter with Art Taylor, CEO of the BBB Wise Giving Alliance, and get the perspective of Angel Aloma, executive director of Food for the Poor.
We talked about the challenges of the current ratings system — what our donors want and care about, why there is so much focus on overhead expenses (and is it fair), and why the current watchdogs can't even agree on what "good" means. Below are the highlights of that fantastic conversation ... and, of course, my opinion on it all!
Why so many and why so different?
There are several watchdog agencies that claim to monitor and evaluate nonprofits in an effort to help donors make better decisions. But in reality, the fact that there are several evaluators is not the problem. The problem is that it's hard for a nonprofit to be better when "being better" is defined differently from one watchdog to another. The bigger problem is that donors have no idea about the differences and therefore if they chosoe to listen to one evaluator, they might be getting information that is not reflective of the full picture, not to mention the true picture.
A few examples of these differences:
- Charity Navigator has developed a system of monitoring that does not allow joint cost allocation. In other words, the accepted practice of looking at marketing and communication (including fundraising) and allocating the expenses associated with them across the areas supported (program, education, fundraising, organizational management, etc.) is not allowed by Charity Navigator when measuring financial effectiveness. Our auditors follow these guidelines, the IRS understands these guidelines — yet this watch dog believes it should not be allowed.
- Charity Watch has developed a system of monitoring financial effectiveness of charities that does not allow any gifts in kind. If an organization is serving Haiti after a devastating disaster and receives significant donations of food, medicines and supplies, the IRS allows those to be counted as revenue. In fact, law mandates they are considered revenue. If an individual donor gives a gift in kind, the receiving organization is required to identify the appropriate value and the donor receives charitable giving credit. Yet, Charity Watch says those don't count and there is no value to them. Once again, tax laws and accounting practices all recognize this as income/revenue, yet this monitoring system has decided to not count them as a part of how effectively a charity is reaching its goals and supporting its mission.
- The BBB Wise Giving Alliance has developed a system of standards — to be exact, 20 of them. There's no grade or score: If you meet the standards, you are accredited; if you don't, you aren't. This is the most comprehensive list of ways to measure effectiveness and efficiency — yet only 60 percent of the charities evaluated actually meet the standards.
What are donors to do?
Are they supposed to know all the details I listed above? I think not. I believe — as do Art and Angel — nonprofits need to communicate absolutely and directly to their donors why they have chosen to hold themselves accountable to a particular monitoring system.
Donors want to know they are aligned with a good charity that is doing good work and solving problems in the world. They don't need to understand the accounting principles behind how organizations develop their IRS 990s and their annual reports.
Right now, many charities are trying to communicate to their donors about all of the evaluators. I think that's overkill. Does a donor need to see the BBB seal and the scores/ratings from the other watchdogs too? My advice? Stop doing that! Only place the watchdog/evaluator classification that your organization believes is the most important and most appropriate.
And, of course, my opinion — and it's not because I spent time with Art Taylor (although he's charming, for sure) — is that the BBB Wise Giving Alliance is the most effective way to show donors your charity is doing the right thing. Do only 60 percent of the charities evaluated meet the standards? Yes. So, let's be clear, they are not easy. But they are fair and they look at all the things that should matter to a donor.
Additionally, the BBB Wise Giving Alliance is committed to helping the industry — not hurting a brand and dragging its name through the media mud when it doesn't meet a standard. Not only will the BBB work with any charity to correct areas that have caused problems with meeting the standards, but it even allows organizations to openly comment on the BBB site as to how it is approaching the standards.
So, it is in the hands of the charity to help the donors understand the prioritization of one watchdog over another. I don't think any watchdog that doesn't even follow standard charitable accounting practices should have valuable real estate on your communication pieces or your website.
But, before I appear too positive about the BBB, let me be clear … there are challenges. To be accredited is free — submit the information for the 20 standards and wait for a response. But to advertise in your communication pieces that you are accredited via the BBB logo or the BBB seal will cost you. You don't pay for accreditation, but if you want the seal that shows you are accredited then you have to pay. This feels bad to some or too expensive to others, but looking at the long-run it is worth it. A study done by an independent research firm found that 45 percent of people who give to more than one charity said they would be more likely to give to a charity that displays the seal. Let's face it — the BBB has informed multiple generations on businesses across the country. Clearly, nonprofits are a part of that long history.
Where we should be focusing
With all that said — there are some very bad nonprofits out there. There are organizations that literally steal money from donors. There are organizations that spend much more money on themselves and big salaries than their missions. There are organizations that imply they are someone else and build upon the credibility of others to trick donors. What I wish is that those organizations were targeted by the watchdogs vs. splitting hairs at the top of the "ratings." We need to rid our industry of the bad charities. And, let's be clear, "bad" in this case is easy to define.
What I wish is that good charities did not have to spend professional energy on explaining why they are a 3.5 now when last year they were a 4.0, or why they were an A and now a B. As an industry, let's not pick apart the good guys — let's focus on getting rid of the bad guys. The BBB is attempting to highlight the ones that are "suspicious" or should make the donors investigate further. It specifically calls out three categories of organizations in its consumer information: organizations that meet all the standards, organizations that do not meet standards (and why, and even if they are working on improving), and organizations that refuse to disclose any information to the BBB. The third category is what I call "suspicious." That's who we should be educating donors about!!
In the end, I'm for helping donors get the information that matters to help them make the best decisions. Helping donors understand what matters should be the priority.
(Click here to register access to all of the sessions from the FS Virtual Conference and Expo. It's free, and available to watch on-demand until Dec. 16.)
Vice President, Strategy & Development
Eleventy Marketing Group
Angie is ridiculously passionate about EVERYTHING she’s involved in — including the future and success of our nonprofit industry.
Angie is a senior exec with 25 years of experience in direct and relationship marketing. She is a C-suite consultant with experience over the years at both nonprofits and agencies. She currently leads strategy and development for marketing intelligence agency Eleventy Marketing Group. Previously she has worked at the innovative startup DonorVoice and as general manager of Merkle’s Nonprofit Group, as well as serving as that firm’s CRM officer charged with driving change within the industry. She also spent more 14 years leading the marketing, fundraising and CRM areas for two nationwide charities, The Arthritis Foundation and the American Cancer Society. Angie is a thought leader in the industry and is frequent speaker at events, and author of articles and whitepapers on the nonprofit industry. She also has received recognition for innovation and influence over the years.