'Tis the season for giving.
Hence the announcement of yet another charity rating system – this one, ImpactMatters, claims to assess the “actual” dollar-for-dollar effect of donations.
All of these charity-rating “systems” infuriate me (not that I think all nonprofits are perfect) because:
a) They have a “gotcha” finger wagging tone and approach that seems to assume that most nonprofits are haphazardly run by incompetent do-gooders.
b) Their so called “metrics” have in many cases, caused considerable harm to the sector.
As a case in point, several charity rating systems seeded dangerously false ideas about how much a nonprofit should dedicate toward overhead in order to be considered “efficient” and “effective.”
To combat that, The Bridgespan Group has led the way in calling out and naming the “starvation cycle,” to describe how nonprofits have become slavishly complicit with donors in a dysfunctional race to the bottom to proclaim they have obscenely low overhead rates.
(I’m using “overhead” here as a synonym for “indirect costs” which Bridgespan defines as “expenses not tied directly to a specific project but shared across multiple projects.”)
Starvation cycle is a great name for this phenomenon because, like humans who struggle with their weight, the goal is to be healthy, not to starve as a result of being food deprived.
Bridgespan has documented (time and again using rigorous research methods) how low overhead in truth, leads to underfunded technology, a consistent lack of staff training, poor staff retention due to low salaries, a lack of strategic planning, and the absence of other types of critical support that handicap nonprofits.
To quote Bank of America’s Dianne Chipps Bailey:
“The most interesting question in measuring impact today is getting beyond this framework of efficiency and effectiveness to embrace advocacy… If you’re just looking at the cost of each meal provided, you’re missing the broader point about why that meal should be provided. Why isn’t it being prepared in affordable and safe housing that is the person’s own?”
Nonprofits often operate in a wildly entrepreneurial space where business can’t go because there isn’t money to be made.
Some ideas that at first seem wacky or daring can end up looking brilliant. Take GiveDirectly, for example, that donates money directly to people in need.
Creating change in the world is difficult, and is often the result of trial, error, and refinement.
It requires persistence over the long-term.
That rule holds if you’re working on a scientific breakthrough, educational programming for school-aged children or incarcerated adults, helping disabled folks find meaningful employment, or working on a zillion other nonprofit-led change efforts.
There is no single model or silver bullet.
There is no one size fits all.
And, what about advocacy and lobbying?
How do we reward, support, and assess the metrics of charities that engage in years long efforts that, if successful, can have an enormous impact on society?
Given all that, how should you decide where to give your money?
Go to Candid.org to get FREE information on nonprofits throughout the United States. If you go to the 990 finder (the 990 is the tax return that charities are required to submit to the IRS) you’ll get a quick snapshot of what that organization does and its financial status.
Go to the organization’s website and read their annual report. The annual report will not only describe that nonprofit’s work, it will also inform you about whether that organization has an audited financial statement or has had a financial review conducted by an accounting firm.
If you have time, go to the organization itself! Volunteer, talk to someone who volunteers, talk to the staff about the work that is being done, and talk to the people who are being served.
The world is in tough shape.
Nonprofits need you to believe in their work and they need your dollars to make it better.
I hope we can spread the word about these charity rating systems and get a conversation going. If you liked this post, I would love for you to share it.
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Pat Libby is a nonprofit consultant that helps charities with lobbying efforts, organizational strategy, and executive searches. Pat has served as an academic, senior executive, board member, and consultant to innumerable nonprofit organizations and foundations for more than three decades.
Get in touch if you have any questions!
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