Measuring Charity Effectiveness: Manage Your Mission, Not Your Rating

These rating schemes tell the public that if you spend more on fundraising, you are bad. They equate fundraising and overhead to fraud and judge the business decisions charities make in order to best fulfill their missions, serve their constituents, and sustain their organizations for the long-term.
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There's no shortage of news coverage on the charitable sector when a charity or their professional fundraiser is suspected or proven to be fraudulent. For instance the recent CNN investigation of Disabled Veterans National Foundation and their fundraiser Quadriga Art. Also, the investigation last fall by the Tampa Bay Times and the Center for Investigative Reporting into alleged charity wrongdoing.

Unfortunately when this type of coverage blankets the airwaves and news columns the resulting conversation inevitably paints all charities with the same brush. The clear message from these reports is that overhead is bad; that spending money on fundraising is at best a sign of inefficiency and at worst a sign of fraud; and that nonprofits and their professional fundraising partners are staffed by charlatans waiting to defraud unwary donors.

Look no further than the tagline of the Tampa Bay Times charity investigation: "The 50 Worst, Ranked By Money Blown On Soliciting Costs."

Having worked for the past 20 years in the non-profit sector and with Wounded Warrior Project (WWP) since our founding ten years ago, I can tell you I'm often asked about these topics and more specifically about WWP's own scores with the charity rating groups that are based primarily on financial ratios and fundraising.

My answer is this: we choose to ignore the charity rating systems because they simply don't work.

These rating schemes tell the public that if you spend more on fundraising, you are bad. They equate fundraising and overhead to fraud and judge the business decisions charities make in order to best fulfill their missions, serve their constituents, and sustain their organizations for the long-term. They tell the public they have done the research and they know better. In fact research actually shows the opposite: that by limiting your growth in infrastructure and fundraising, you may have a lot of good intentions, but you're not going to help a lot of people. Even some of the rating groups are now admitting this and you can read their open letter to the public here: The Overhead Myth.

What I know to be true after reviewing their rating schemes, is that they are at best horribly misinformed and ineffective and -- at worst -- outright misleading.

In the short ten years from our founding Wounded Warrior Project has grown from a small, grassroots organization to one of the largest nonprofit organizations in the sector. We now provide comprehensive services to our constituents with over 20 programs that help them with their physical rehabilitation, aid in their mental and emotional recovery, assist them to achieve their educational and employment goals, and help them maintain their independence and stay connected with their families, their communities, and each other. We deliver those programs through 17 offices across the United States and in Europe.

Furthering our mission and broadening our impact was only possible by ignoring conventional wisdom about how nonprofits should be run. By ignoring the pressure rating groups put on charities to reduce spending on fundraising and administrative overhead. We had to invest in our programs, our passionate and dedicated staff, our infrastructure and, yes, in our fundraising to ensure we could innovate to meet the lifelong needs of our constituents.

The result -- since 2008, we have grown our program expenditures by 55 percent annually, through this year, spending $450 million on programs that now support over 50,000 of our warriors, their families and their caregivers. And we will continue to proudly do so in the years to come.

So what's the solution to the skewed media coverage driven by the charity rating groups? Charities need to take back the dialogue about our industry from these self-appointed watchdogs who create their own standards and are themselves the tiniest of our fellow charities. Charity Navigator and Charity Watch combined have 23 staff members and less than $2 million in annual revenue. Nonprofits employ more than 13 million people -- that's approximately 10 percent of the U.S. workforce. Collectively we raise more than $300 billion to support our causes.

Let us be the voice of our own industry and lead the dialogue about charity ethics and effectiveness.

Here are a few concrete steps we can take to make that happen:

First, we need to do a better job of measuring and reporting our impact -- transparently. At Wounded Warrior Project we have an entire section of our website devoted to reporting our annual goals, including both quantitative and qualitative measures of the effectiveness of our programs. We also publish the results of an annual survey, administered by a third party research group, showing the long-term impact we're making in the lives of our constituents. We all owe it to our constituents, our donors, and ourselves, to honestly assess and report on our impact -- on how well we are fulfilling our missions. When we don't, we leave the public very little choice but to look to the rating groups and their faulty use of overhead ratios as a measure of charity effectiveness.

Second, we need to hold ourselves and our industry to the highest standards of ethics and professionalism. Ultimately it's the role of government to punish the few bad actors in our industry. However, if we're to retain the public trust then we must acknowledge they exist and do our part to protect our industry and the public. One simple step we can take is that when those bad actors are identified -- we stop doing business with them.

Third, we need to inform government officials about the appropriate way to measure charity effectiveness, educate them of the importance of fundraising and other overhead expenditures to achieving results, and advocate against onerous regulations that would set arbitrary rules on how much a charity can spend on fundraising, salaries, and other overhead expenses.

Fourth, we need to start having a public dialogue about these issues -- with our donors and supporters, with the media, and, yes, with each other. If we don't, the charity rating groups will continue to be the leading voice. Let's start the dialogue today. I invite you to share your insights into this important conversation by clicking below and joining my LinkedIn group, Alliance For Charitable Trust.

Finally, we need to encourage everyone in our industry to make the right choices to further their mission. Choose to ignore the ratings systems that don't work. Choose to invest in your fundraising. Choose to scale and grow your programs.

Choose to make a great impact.

That's what I aspire to do.

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