The issue of fundraising overhead ratios and the ways in which charity watchdogs evaluate nonprofit organizations has been at the forefront of the fundraising sector for a while now, and it's an issue that isn't going away anytime soon.
We have covered it here at FundRaising Success many times over, but never quite as aggressively as Steve Nardizzi, executive director of Wounded Warrior Project, did yesterday at the 9th Annual Bridge to Integrated Marketing & Fundraising Conference. In his opening keynote session, "Your Mission or Your Overhead Ratio — Which Should Be Priority #1 in Your Organization?," Nardizzi came out swinging against charity watchdog organizations like Charity Navigator and CharityWatch — those that rate nonprofits and tell donors to only donate to ones that meet their ratings standards — and the media that spread negative views of nonprofits and fundraising.
"Without investing in fundraising, you may raise money, but you won't make a big impact," Nardizzi said. "… The clear message from news reports and watchdogs is that overhead is bad. If you spend money on fundraising, at best you are horribly inefficient and at worst you are fraudulent. The news media is helping perpetuate the myth on how nonprofits should be run, and the public is starting to believe it."
Nardizzi said these reports, and the "charity watchdogs" that tell donors to donate to organizations based solely on overhead and financial ratios, pass judgment on how charities should go about fulfilling their missions and how to sustain their organizations over the long run. And he says at times they flat-out misrepresent the sector to donors.
These small groups, fellow nonprofits themselves, are controlling the conversation, and Nardizzi says that's not right. So since day one at Wounded Warrior Project, he decided he was not going to let these organizations dictate how WWP was going to do business.
"My answer on our ratings tends to take people aback," he said. "We get those lower ratings because we choose to. I get a three-star rating and a C+ rating because I choose to.
"If we followed the charity ratings, we'd make less of an impact, so I choose to ignore them," he added.
Thankfully, people are starting to take notice and understand that overhead does not equate inefficiency. And for the most part, the watchdogs don't have an affect on the majority of donors. In fact, the Hewlett Foundation stopped funding charity evaluators after it did a study that showed only 3 percent of donors report that charity watchdogs influence what organizations they donate to and that the watchdogs are not effective at evaluations, according to Nardizzi.
"If I was as ineffective as those charities [the watchdogs] at achieving their missions, I would shut my doors," he said.
The key, Nardizzi said, was to "manage to your mission, not your rating groups."
That's what WWP did, staying true to its mission to help the wounded soldiers who have sacrificed so much. WWP does not charge service fees or dues, and does not accept certain sources of revenue such as corporate dollars from alcohol companies since many veterans are more susceptible to alcoholism. It only aligns itself with the proper sponsors and does all this to stay true to its mission, ratings be damned.
"Most importantly, if I want to change our financial ratios, I'd have to spend less on fundraising. We would not have grown at the pace we have if we did that," he said. "If you really want to grow as a charity, you have to acquire new donors, and that's the most expensive fundraising you can do."
By investing in fundraising and ignoring the critics, WWP has grown 66 percent since 2008, and increased program expenses 55 percent year over year. That's allowed WWP to invest more than $360 million more that goes to programs that benefit wounded warriors.
"The impact that we've made, the programs and services we provide — that isn't calculated into scores put into rating groups or media coverage those groups generate," Nardizzi said.
"How much a charity chooses to spend on its overhead and its fundraising are all business decisions," he added. "If you disagree with them, you disagree with the business plan. The problem is when you inhibit them with new laws and statutes, you characterize those practices as fraud, characterize fundraising as something illegal, and that distracts people from the real frauds."
It's damaging to the entire sector and a ludicrous way to look at how nonprofits work, he said. And worse yet, it misleads donors.
Nardizzi said that the conversation about the sector has been hijacked from the smallest portion of the charities, and it's time to take it back. Here are four things he said fundraisers and nonprofits can do:
- Take back the dialogue about the fundraising industry. Report on all their annual goals and financial information in a transparent way, and publish independent, third-party research. "We owe it to our constituents, our donors and ourselves to report on the effectiveness of our missions and our programs," Nardizzi said.
- Hold themselves and the industry to the highest standards of ethics, professionalism and accountability. "We need to admit that bad [apples] exist, and we have to take action against them," he said. "When there's a bad apple, we have to ID them — and we have to stop doing business with them."
- Educate government officials that the best way to evaluate charities is on impact, not cost ratios.
- Start having a much more public dialogue about these issues. "Talk with your boards, chapters, staff, donors, the public at large, the media and with each other. If we don't, charity rating groups will continue to be the voice of our industry," Nardizzi said.
"We can take this back. Until then, I will continue to make the choices I make because I believe they're the right ones," he added. "We all believe in our causes that we raise resources for. Just imagine what we could accomplish if we take away the artificial restrictions. Start making the same choices that I do. Choose to ignore the rating systems that don't work. Choose to invest in fundraising. Choose to grow and to scale. And choose to make a great impact."
- Categories:
- Ethics/Accountability
- Companies:
- Charity Navigator