The three powerhouses, Guidestar, Charity Navigator, and Better Business Bureau, that foundations, philanthropists, and donors use to seek out information and ratings about nonprofits released an open letter to the nonprofit and foundation world yesterday. They stated that donors should not measure a charity’s performance based on overhead expenses. The letter hosted on the website www.overheadmyth.com comes on the heels of Dan Pallotta’s TED Talk and Keynote at NTC13, which sharply criticized funders and nonprofit rating service providers for penalizing nonprofits who spent what they considered too much money on administrative expenses, such as salaries, training, and benefits. Pallotta asked how the nonprofit sector can ever expect to compete with the corporate sector for talented leaders when nonprofits can’t pay decent salaries and benefits. This is a topic that Amy Sample Ward and I also discuss in our book Social Change Anytime Everywhere in the chapter on Disrupting the Nonprofit Sector.
In the letter, the three ratings companies recommend that donors measure a charity’s performance in transparency, governance, leadership, and results. When I’m evaluating a charity for a client who is looking to make a significant donation to a nonprofit, I measure 4 key things:
1. How effective is that organization in creating real world social change? For example, if they are a local soup kitchen, how many people are they feeding every day? Do they offer job training and housing assistance for people in transition? If they are an advocacy organization, are they moving the needle around the issue they are advocating?
2. What kind of results is the organization generating? Using the example of the local soup kitchen, how many people in their job training programs are graduating and are obtaining jobs? How many of the graduates do they continue to have a relationship with? How many people who have benefited from their services come back and volunteer? These are just a few examples of data I would research to analyze their results.
3. How transparent is the organization with their data and findings? Transparency, while important, has become a big buzz word in the nonprofit community and marketing world. Every organization and the people who run them claim that they are transparent. But are they? How transparent are they with their financial data as well as their program successes and failures?