What Is The Watchdog Watching?
This week the Chronicle of Philanthropy reported that members of the Direct Marketing Association are working on an official protest against the watchdog Charity Navigator.
At issue is Charity Navigator’s decision to challenge a longstanding accounting practice to count some of the money nonprofits spend in the course of fundraising as ‘program costs’ rather than ‘fundraising costs’.
Charity Navigator claims this accounting practice allows some groups to mask high fundraising costs. The protesters say the watchdog group is ignoring long-accepted accounting principles and substituting its own arbitrary measures and wrongfully denying some groups a proper rating.
The Agitator’s view is that the idiotic ‘cost of fundraising’ metric favored by overly zealous watchdogs, media, some regulators, and ill-informed boards and fundraisers is, well, simply idiotic.
And frankly whether the so-called ‘joint cost allocation’ is used or not (used for example to assign parts of a mailing to ‘fundraising’ and parts to ‘education’), the fundamental metric is virtually meaningless, outmoded and should go the way of physicians’ leeches.
But I digress. I was really writing to say I wouldn’t waste too much time getting upset over Charity Navigator for the simple reason they really don’t matter. At least not when it comes to influencing donors’ behavior. Here’s why:
- A 2010 study 0f 4,000 plus donors by Hope Consulting titled Money for Good found that “few donors do research before they give, and those that do look to the nonprofit itself to provide simple information about efficiency and effectiveness. In short, ain’t many donors checking Charity Navigator.
- And for those donors who do some research, according to the Hope Consulting study, they look for “information on the efficiency and effectiveness of an organization … and donors typically look to the organization itself to collect information.” And this is true even among the givers of major gifts.
- These findings are very much in line with every study I’ve seen over the years about the influence of charity watchdogs both in the US and in Europe.
All bark. No bite.
And sure not worth losin’ much sleep over, especially if your program is based on small and mid-sized gifts.
Honestly, I’m not against Charity Navigator. They’re entitled to their hustle as much as anyone. Although they’re sure not entitled to disregard, substitute, or bend generally accepted accounting principles in a whimsical or capricious manner.
What I really oppose is the presumption or premise on which Charity Navigator and similar services are based: that donors should do more research or want to do more research.
Why? Why should they?
When you buy a pair of running shoes, purchase a mobile phone or choose a fancy restaurant do you first look at the financials of the manufacturer, phone company or restaurant owner? I sure don’t.
I suspect that you, like most consumers, rely on brand, past experience, word of mouth, referral and a dash of hope and trust. Why the hell should donors be expected to or feel obligated to check on charities?
In short, if there is to be a watchdog group, then it should be damn sure that what it’s watching matters. When a group like Charity Navigator offers up the banality of overhead or cost of fundraising as a key metric it provides donors the equivalent of the opportunity to watch a match burn while the forest fire rages forth.
Why not focus on lack of impact on program or mission? Or at least expand the silliness of the overhead metric just a smidgeon and look at the absolute dollars that are flowing to the nonprofit’s program?
Does a school bake sale with an incredibly low overhead raising $73 for charity deserve more stars than an organization that raises millions for charity and has a 45% overhead? Not in my book.
Where do you stand on all this?
Roger
P.S. I single out Charity Navigator only because right now it’s the subject of a good deal of concern and anger in the direct marketing community – the readership base of The Agitator.
P.P.S. With the one-year anniversary of CNN’s expose of the Disabled Veterans National Foundation fundraising practices and other charity misadventures approaching, we’re working on a follow-up of what actions have been taken by regulators and the industry, what practices have changed and lots more. Stay tuned.
P.P.S. RETENTION REMINDER: The Agitator/DonorVoice Retention Webinar is Tuesday, March 19th at 11:00 a.m. Eastern. Sign up here while seats are available.
15 responses to “What Is The Watchdog Watching?”
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Amen.
Yes, yes, yes! And thank you.
Yes, I find this form of measurement simplistic. In my five years in this industry, I have had ONE donor ask me what our “percentage” was. And she even admitted afterward she didn’t really know what it meant, but felt like she was supposed to ask.
Organizations can feel like slaves to their “cost of fundraising.” We have vetoed interesting and experimental campaigns because if they weren’t a guaranteed success, it would hurt our ratio.
When we talk about how our industry is sometimes too hesitant about change … factors like this certainly don’t help.
These groups also scare small non profits by telling they will take away a “star” because they exchange their list, thus crippling the acquisition program. How could they make such a bad call. Do the folks at these group have any direct mail experience – How could they with this kind of awful decision.
Good column, Roger. The problem is groups like Disabled Veterans National Foundation and the suppliers behind them; this prompts the watchdogs to overstate the issue with other groups. Another problem with the watchdogs is that their simplistic formulas allow groups that receive large amounts of government money to appear more efficient at fundraising than those that rely largely on private donations when in fact the government monies should be walled off for any calculation purposes. And I have yet to encounter a watchdog – or state regulator, for that matter – who was ever truly in the fundraising business or made much of an effort to become educated about it before they started judging it.
Amen, brother!
I have concerns with the way Charity Navigator rates non-profits. But I do challenge your assertion that people don’t research before giving. The 2012 Cygnus Donor Survey reports that:
“83% of respondents said they conduct research on not-for-profits that they are considering for support.”
While the report says that a non-profit’s website is the most common place to do research, it doesn’t seem to exclude watchdog sites or the use of watchdog “seals of approval.”
Mark, a note re: your Cygnus Survey comment. No disrespect intended, but I try to take most surveys, including Cygnus, with a grain (or several grains) of salt. For example if instead you read this October 2012 survey from the Nonprofit Times http://www.thenonprofittimes.com/news-articles/majority-of-donors-give-without-online-research/, they say around 50% research online. BUT of that percentage, only approx. 22% do their research on watchdog sites. More (approx 35%) go straight to the charity’s website. And as this link discusses http://www.huffingtonpost.com/2013/01/08/mobile-donation-research_n_2434589.html, the researching crowd is even smaller for people giving via smartphone.
And Roger, especially in light of Tom Harrison’s “15 Mistakes” piece yesterday, this is a superbly timed post. I learned from you both. Thanks, as ever, Lisa
Hi there,
Please check out the TED talk by Dan Pallotta titled, “the Way We Think about Charity is Dead Wrong.” I would love to hear your thoughts and your readers thoughts on this. It definitely made me think about how the public looks at charity accountability.
Best,
Loren
I agree Loren. Dan’s TED talk told this conversation so much further than simplistic metrics to highlight the bigger problems caused by a warped meaauring stick.
The back and forth over efficiency ratio is missing the bigger damaged caused by limiting the ability of our world’s best change agents to grow and tackle big problems. That’s why I think Dan continues to be one of the best voices on this issue.
I believe Dan Pallotta makes a strong case for measuring outcome and impact over frugality on what matters to get there that most of us would report as overhead. But I am not going to the mat with Charity Navigator. Every portal to help transparency on behalf of our sector has its bias on metrics. I always took initiative to be certain our strongest story was on display with everything from the Form 990, Better Business Bureau, the United Way or any other third party portal that publishes information about our charity. If there is the appearance through these portals of non-alignment with our strategy, it becomes a generative discussion for our governance groups and management stands with an open response as to how the filter rendered a three star instead of a four star. A charity with a very diverse revenue source base in which fundraising augments advancement of mission to achieve greater outcome can make the case on the latter when fundraising is isolated from the whole by a third party. The focus of discussion with the donor is about strategy and outcome very similar to what Dan Pallotta articulates. I would never discount publicly a recognized third party reporting on charity performance with consistent indices though the latter may change and then consistently applied. Nor would I make the case for my agency by subscribing to results shown how we rank. It is a secondary incidental discussion in the board room. The focus is on strategy, impact and outcomes. If in the remote possibility a prospective donor raises a question based on review of Charity Navigator records, I can say it was openly discussed by key leaders on the board and management and seize the opportunity to respond with charity outcomes and advancement of mission. Keep it simple.
I am persuaded that the trend will be toward more donor investigation, especially if the gift is a significant investment (from the donor’s perspective). Not many may be investigating now, but I think Guidestar, CharityNavigator, and other so-called “Watchdog” organizations will gain influence in the coming years. Donors are increasingly sophisticated about charitable giving and so are their advisors. Articles in the WSJ and other influential financial publications are encouraging HNW individuals to take their charitable contributions more seriously–and that means more investigation. But I think all of this is so very healthy and needed. We need to trust donors to hear our side of the numbers. As one of my favorite financial advisors is fond of saying, “It’s not your (the client’s) job to understand; it is my job to explain things in a way that is easy to grasp.” Everyone in fundraising should welcome the dawning of a time when major donors are more engaged.
Transparency is good. Research is good. I’m sure they did their homework before coming up with the measurements they did but they don’t seem to have a great grasp on the field they are measuring. Financials are just one metric and over the past few years funding has been so volatile that I’m sure many charities lost stars because they didn’t see “growth.” Not exactly fair or realistic. To me, Charity Navigator does much to undermine the public’s confidence in charities since they seem very focused on exposing the “bad” instead of highlighting the good. They also perpetuate the myth that overhead is unnecesary. Without the CEO, utilities, and admin staff you have a poorly run program that no one knows about and can only operate during daylight hours! “Overhead” needs to be redefined in my book.
Lisa,
A few grains of salt re the NonProfit Times study:
1) I think I’ll stick with the 11,900 sample size of the Cygnus study over the 1,015 in the NonProfit Times study.
2) Their data is specific to “donors who send in a check after receiving a direct mail appeal.”
3) Just because donors don’t VISIT watchdog sites, doesn’t mean the logos and ratings on the charity’s website are unimportant.
4) Are 22-50% of prospective donors suddenly not worth worrying about?
Mark, good stuff: too bad The Agitator isn’t a coffee shop where fundraisers speak face to face. Doubtless debates would be long and lively! As one who spends her days writing to donors, you can bet I concern myself a great deal with what actually moves them to give, far beyond that first gift…thanks again for pointing out all the flaws in my reply to help folks reach their own conclusions. I, for one, will dig deeper into this topic! All my best, Lisa