DMA Crowd Slams Watchdogs and Donors Who Like Stars - But What’s the Solution?
- Wed, August 25 2010
- Filed under: Marketing essentials
If you work for a charity rating agency, you did not want to be at the DMA Nonprofit Federation meeting this week. Watchdogs were about as popular as canines at a cat convention. First, you had the keynote speaker - Dan Pallotta, author of Uncharitable and a big critic of watchdogs like Charity Navigator and the BBB Wise Giving Alliance. He laid out a provocative, controversial and compelling case for allowing charities to operate like capitalists - paying to get good talent, spending and risking what’s needed to do effective long-term fundraising, and being judged on social value created rather than overhead spent. There was some good thinking there - and some pointed potshots. In the process of making his case, he slammed watchdogs for perpetuating a simplistic focus on how much charities spend on “overhead.” The audience loved it, of course. Direct marketers are labeled as fundraising “overhead” and the less efficient of them have been called out by watchdogs, sometimes with good cause. It was a joy for them to hear “overhead should be dead.”
Specifically, he said: “We must get people to stop asking what percentage of their donation goes to a cause.. and give nonprofits more freedom to spend their money on things demonized as overhead, so they have some hope of reaching a fraction of the scale of the social problems they are trying to confront.” He advocated that we stop using the word overhead, that donors stop asking questions about overhead, and that we throw out the watchdogs and build “a magnificent national assessment apparatus.”
Then there was the release of two studies at the conference that also called into question the work of watchdogs, saying their ratings “may be causing more confusion than clarity.” The reports were “Reframing the Discussion about Nonprofit Effectiveness,” and “Charity Rating Scales: The Challenge of Developing ‘Effective’ Measures of Nonprofit Organizational Effectiveness,” both available via the DMANF. The studies say the ratings affect donations, with watchdog approval leading to donor money. This is a problem, the thinking goes, because the ratings only measure how much money a nonprofit spends on “overhead” rather than how effective that charity may be. The DMANF said the first report concluded:
Those who want to learn about a nonprofit prior to making a financial contribution not rely on watchdog websites as “one-stop shops” for information, but to do “old-fashioned” research about a charity’s operations and programs to help make a more fully informed decision.
Hmmm…. I’m not sure what “old fashioned research” involves, but I can say it is unlikely to happen. It seems to me this whole watchdog-bashing is long on criticism but short on solutions. I love the idea of a magnificent national assessment apparatus, but that is a very, very long way away. In the meantime, what are donors to do? And what are we nonprofits to do?
Let’s review. Here’s the anti-watchdog position: Overhead doesn’t tell the full story about a nonprofit’s work. Therefore, it is bad. Kill the watchdogs. Donors should set out to do their own in-depth research on a nonprofit’s effectiveness - or we should await the magnificent national assessment apparatus.
Here’s what I like about that argument: Yes, overhead is only one limited criteria and the CEO’s salary doesn’t really tell you how many lives get saved by a charity. I agree with Pallotta that paying for talent is not bad, and fundraising is a necessary expense. And yes, it’s a shame that overhead is the only quick way to compare charities.
Here’s what I don’t like about what I heard: That anyone in their right mind thinks the solution is for donors to do “old-fashioned research,” taking time to go try to figure out which nonprofits are effective with in-depth analysis based on…? I don’t do that with my 401k - so I certainly don’t have the time to do that with my charities - if that data was even readily accessible. There is no single good source of information on nonprofit effectiveness, though some good people are doing their best to start trying to provide it. We don’t have the magnificent national assessment apparatus, so what do donors do in the meantime?
Today I called up Ken Berger of Charity Navigator today to ask what he thought - and to find out if he knew the claws were out. As he’s publicly said, he agreed that overhead is a one-dimensional view into charities. That’s why he, with partners like Great Nonprofits and GuideStar, got together and said as much. It’s also why Charity Navigator is adding two additional dimensions to its ratings. You see, here’s the funny thing: the watchdogs have gone on record agreeing overhead doesn’t tell the whole story. And Charity Navigator is working to add two more dimensions to its work. They have always done #1. They recently added #2 and are working on #3 with their partners:
1. Financial health – Is the nonprofit sustainable? Does it have robust financial strength to survive in good times and bad? Is the overhead not at the extreme end of the continuum?
2. Accountability – Does the organization have ethical practices, good governance and transparency? Is it accountable to its constituents?
3. Outcomes – Can the nonprofit supply information about meaningful and lasting change in the communities and lives of the people it serves? Can they show evidence that these changes are as a result of their efforts? Do they have systems and processes in place to effectively manage their performance?
These three dimensions will then be part of Charity Navigator’s star ratings - which is the only way any of the watchdog critics are going to get to their goal of a more well-rounded view into nonprofit effectiveness that donors actually use. They may hate the watchdogs, but we need a simple, watchdog-like system with an at-a-glance seal of approval. It would be nice if the seal told as full as a story as was possible in a sector where it’s not always easy to measure impact. People like to see stars - a simple, accessible and easily compared rating - and that is never going to change. Let’s not condemn a desire for simple ratings. And let’s quit trying to change that universal truth and constructively contribute to a way to make those stars as three-dimensional as is practical. A fuller picture is something everyone wants - but we need to do the work together of making that possible.
Full disclosure: I write this blog as an individual and not as a representative of my organization, but I should say my organization Network for Good partners with Charity Navigator and GuideStar.
Comments
Right on! I love your quote “We don’t have the magnificent national assessment apparatus, so what do donors do in the meantime?”.
The watchdogs are making progress in the right direction and they should be applauded for that. Let’s figure out how we can mutually support the positive direction that the watchdogs are going in, rather than criticize them for their past.
We are thrilled to partner with GuideStar and CharityNavigator towards reaching new and innovative ways of looking at how a nonprofit makes a difference in its community. We hope others will join us.
Katya,
Thank you for your balanced reporting. That’s our goal too. A study that recently came out tells the story well. Hope Consulting found that donors want three things:
Information on charities that is -
1. Simple to access
2. Easy to understand
3. Low or no cost
That is the case regardless of donor income level. Guess who fits that profile? Charity Navigator. Meanwhile the direct marketers and their friends make $ off of NPs. They want happy stories and big profits. We just want the facts.
Best,
Ken Berger, Charity Navigator
I don’t understand why he is so outraged! The nonprofits are doing an excellent job. Why does he want to ruin everything?
“We must get people to stop asking what percentage of their donation goes to a cause”- this won’t happen because people have trust.
This is soo dumb!
Thank you, Katya, for bringing clarity and balance to this issue. As Perla mentions, many watchdog organizations are addressing the tough issue of measuring impact. At the Charities Review Council, we’re also addressing nonprofit need for technical assistance to meet accepted standards, including organizational attention to evaluation processes that lead to assessing and improving impact. In that regard, we’ve morphed from a traditional “watchdog” to what’s called by nonprofits a “guidedog.”
Regards,
Rich Cowles, Charities Review Council
These days few watchdogs believe overhead ratios tell the story about a charity’s performance. The BBB Wise Giving Alliance has never supported the use of financial ratios as the sole method of assessing charity accountability but has always used a set of broad standards to accomplish our evaluative work. I did not attend the DMA session, although I have given presentations at past gatherings. I glean from Katya’s blog that the mood in the room was unusual in that it was decidedly anti-watchdog. I’m a bit surprised by this. The number of efforts underway to give charities different and richer ways to share their worth with the public should give charities comfort rather than pain. We have invested in a process with Guidestar and Independent Sector to develop a framework for charities to report mission impact. I am happy to say that our work has been much informed and aided by charities, large and small, that will be asked to provide this information. We will move the needle forward on impact reporting. It’s great that DMA has raised this issue, and Katya has reported it, to let us know the significant distance we must travel to make charities aware and supportive of these new opportunities.
Mal Warwick emailed the following to me today and asked me to post this along with an invitation to contact him if you’d like to see his further writing on this topic.
Hi, Katya,
I’m one of those people who has been speaking out against the one-dimensional approach of the charity watchdogs for . . . well, at least a quarter-century. You and I seem to agree that approach is at best misleading and at worst damaging to some very effective nonprofits. But I’ve also written about WHY it’s misleading and can be damaging. I’m attaching a piece I wrote along those lines 15 years ago. Nothing fundamental has changed.
However, I’m also trying to do something constructive. I chair the board of directors of GreatNonprofits, which you kindly mentioned in your post. Yes, we’re partnering with Charity Navigator (and with Guidestar and others as well) on bringing the voice of the “consumer” into the debate – donors, volunteers, beneficiaries – and we’re starting to see impact. (Stay tuned for the results of a study now underway that will be released in the fall.)
Do I think that the “reviews” stakeholders write about charities on GreatNonprofits or our partners are a panacea? No, of course not. But, as reviews become more frequently seen – and they will be, believe me – and as watchdogs like Charity Navigator place more emphasis on them, I believe we’ll see the nonprofit sector edging away from the one-dimensional approach that has proven so unattractive.
Mal
As long as there is Charitable money involved I believe there should be oversight on how it is spent. Guarding the hen house should not be done by the foxes. Everyone should be accountable.
You said: There is no single good source of information on nonprofit effectiveness, though some good people are doing their best to start trying to provide it. We don’t have the magnificent national assessment apparatus, so what do donors do in the meantime?
My Comment: Exactly my point I have raised numerous times when helping out a local nonprofit animal shelter. The problem is the only real information out there is usually inflated by the nonprofit’s own board. I think it would be absolutely amazing if a collective of donors decided to put a website together detailing everything they can on specific nonprofits. Like an Angies List of nonprofits. Does anyone know if someone’s already trying to do this?
I believe it is good to have watchdogs to help oversee nonprofits, and I do agree that the emphasis on the percentage of money going to the cause versus operating costs can be too harsh. There needs to be consideration for start ups because we need to put more money to our costs just to survive. The larger and more established organizations can handle their overhead differently because 10% of $10,000,000 is a healthy $1,000,000, but 10% of $50,000 is a paltry $5,000 which is not even enough to pay employees.
A great source of third-party information regarding charities is a site called charitynavigator.com. They provide ratings, based on lots of criteria, to help “do-gooders” find great sources for funds…...
Thanks for your balanced reporting. Really it is our goal too. A study that recently came out tells the story well. Hope Consulting found that donors want three things:
There are some Information on charities are-
Simple to access, Easy to understand, Low or no cost
There ought to be a rule of thumb as to what percentage of donations can be diverted to “operations” vs the amount for the cause itself,so that the non-profit doesn’t fold and only the officers have $$$.
Gerald