Are Nonprofit Evaluation Ratings Important?

I love when the college football season winds down. With respect to Division I football, the big debate is usually based upon ratings. Which four teams will end up playing for the national championship? These ratings are based upon win-loss records, strength of schedule, when losses occur in the season, etc. In the world of statistics a lot of numbers are in play. At the end of the season, there will only be one champion. In the world of nonprofits, potential donors have to view organizations in somewhat the same way. Donors ultimately give to successful and winning organizations. The question is: Who rates nonprofits, and how do they rate them?

A number of organizations exist to rate charities. For example, Charity Watch is a nonprofit charity watchdog and information service. The mission of the organization is to maximize the effectiveness of every dollar contributed to charity by providing donors with the information they need to make more informed giving decisions. Analysts perform in-depth evaluations of complex charity reporting, such as program percent—the percent of total expenses a charity spends on its programs annually—and cost to raise $100—which denotes how much it costs a charity to bring in each $100 of cash donations annually. The financial analysis is in-depth and complex.

Charity Navigator is the nation’s largest and most-utilized evaluator of charities. Employees from this firm examine tens of thousands of documents from charities to develop an unbiased, objective, numbers-based rating system that assesses more than 8,000 of America’s best and lesser-known charities. Specifically, Charity Navigator’s rating system examines two broad areas of a charity’s performance: its financial health and its accountability and transparency. Its mission seeks to provide a guide to intelligent giving. It is a 501(c)(3) nonprofit organization. In the last year alone, 7 million donors visited the Charity Navigator site.

Give.org, BBB Wise Giving Alliance, is another entity that reviews charitable performance. It provides research on a variety of standards for charity accountability. Some examples of standards include governance, board oversight and size, measures for effectiveness, policies and reports, finance reviews, program and fundraising expenses and budget, plus fundraising information, materials, annual report and complaints.

All of these organizations play an important role in educating prospects and donors on the organizations they are considering to support. These organizations need to be transparent, honest and ethical.

In addition to an organization’s sample rating criteria, I would like to see background information and results on the following areas to provide more insight when rating the fundraising organization:

1. Development staff leaders. How much money has he or she generated under his or her watch? Does the person have extensive experience in all facets of fundraising, which include annual, major and planned giving? Cite examples of success. How long has the person been in charge of fundraising for the organization? How long is the individual’s career? Has the person won any awards? How large is the person’s fundraising staff? How much experience does he or she have in the role? Cite examples of success. Does the individual have a strategic and organizational plan with goals in each facet of development? Has he or she received complaints? How strong is the volunteer force? Are the person’s mission and priorities for fundraising validated by external entities, such as leading community organizations? The list can go on. You should be rated in this area in a four-star manner.
2. Board of directors. Has this board been in place for a long time? Do you have diversity on your board, and does your board provide examples of giving time, talent and treasure to the organization? Does your governing board provide a development committee, and is this committee generating documented funds to meet the needs of the organization? Are your executive and nominations committees progressive? How would organizations such as the United Way and community foundations rate your board? Does your board own its fundraising responsibilities? Is the board large enough to handle the complexity of the organization? Rate the board on a four-star scale.
3. Administration. Is the administration progressive in the field of philanthropy? Do they support the efforts of fundraising staff, board and volunteers to achieve fundraising goals? Does administration help shape fundraising priorities, such as programs, services, endowments, buildings, etc. Is the president/CEO a champion for philanthropy? How is the charity perceived by the community, and would it give the charity for four-star rating?
4. Validity. Are there materials, such as annual reports and other documents, which reflect community impact that can be rated each year? Do these materials, such as development goals and objectives, fundraising priorities, community impact, internal place to work features and other variables, allow others outside the organization to judge whether the organization is truly successful or not?

In summary, ratings of an organization are important, in my opinion, because they give you a benchmark on which to compare, contrast and improve. Any rating should be fair, objective and reflect variables. I would love to see every organization rated—even better if it would be by area of focus, such as education, social services, etc.

When I give to an organization, I want to know the ship’s captain and crew are experienced, focused and dedicated. I also want to know at least 83 cents of a dollar are being spent on program needs. I want to know my donation is making a community impact regardless of the size of the gift. I expect the organization to have few complaints and be worthy of my gift.

In fact, if I looked at any rating organization on a four-star scale, I expect my charity to be a least a three—for a number of consecutive years. I expect a great deal out of my nonprofit and I hope my peers feel the same way about their nonprofits. As my dad once said, “all we have and what matters is our reputation!”

Are nonprofit evaluation ratings important? Let’s just say people will give—and give more—if they feel secure and trust the organization they support. It may be a matter of ratings.