The following is an open letter I sent to MoneySense on their rating system trying to evaluate charities.
You are wrecking philanthropy.
I recently came across your 2012 Charity 100 and was very disappointed. How an educated and business savvy magazine like yours could be so misguided and off base in trying to evaluate charities is mystifying. The worse part is that your misguidedness and off baseness will continue to confuse the masses and convince them that how you evaluate charities is how they should evaluate charities and that, unfortunately, is wrecking philanthropy therefore you are wrecking philanthropy.
Not single-handedly it should be said but with your “expertise” and large readership you are more responsible than most in perpetuating a destructive and misinformed practice and thought process when it comes to evaluating charities. Here are the ways you are wrecking philanthropy:
- Defining organizational efficiency on accounting. Efficiency for charities should be the results they produce compared to the expense it took to get those results. Your “efficiency” rankings are based solely on the allocation of funds to programs compared to administration and fundraising or “overhead”. In addition to these numbers being easily manipulated they say nothing of the actual results or, to use more investor based language, nothing of the return charities give to their donors. This is all beyond the fact that the “overhead” areas that involve things like salaries, IT and marketing are hugely important to the success of charities and you are punishing organizations that invest in these areas.
- Using fundraising efficiency as a measurement. At all. Why is this even used when wanting to evaluate charities? What do you, or the donors you supposedly are speaking to, care what it costs a charity to raise the money they do? In your flawed system you are already punishing organizations who spend on marketing and fundraising, or at least those who account accurately, so to have another section to punish those that have to spend more to raise funds seems a little redundant and completely useless.
- Governance and Transparency is a “yes, no, N/A” questionnaire. Seriously? 14 questions that the charities filled out themselves is what we are considering the gauge for governance and transparency? Did you do any follow-up on those answers to prove or disprove them? I applaud your attempt to focus on this issue as it, along with reserve fund, are the only ones that have any sort of significance when evaluating charities but your “methodology” here seems more like a 3rd grader take home quiz.
- Using a magic 3 to 36 month “sweet spot” for funding reserves. This was probably your best section in that having some cash on hand is needed and shows proper financial management from the leadership. Having tons and tons of reserves can mean that not as much money is being used to affect change as it could. I have no idea how you arrived at the 3 – 36 month time frame as being “optimal” and your joke of a methodology does not help clear this up at all. Is this based on historical evidence that organizations with 3 – 36 month reserves are better suited to make an impact? Did some PhD make this recommendation? That’s a pretty wide range and some industries, like health, are much better suited to have reserves compared to others, like international aid, that are much more lean in their reserves. It’s sort of an apples and oranges situation here with no solid methodology, that you can tell us about anyways.
- Focusing on salaries. At all. Thank you for not making this part of your grading system. So why is it on there at all? If your other categories are correct in identifying “good charities”, and they are not, then what relevance does the top salary have? Other than confusing people more and getting them upset that, heaven forbid, someone working for a multinational corporation that saves children’s lives makes 6 figures when someone working for a multinational corporation that distributes sugar-water makes 8 figures. This isn’t helping the conversation, just muddying the waters even further.
You cite this study as a way to help people “Give with Confidence” but what you’ve really done is help people “Give Stupidly with Confidence”. You have said nothing about actual impact, outcomes or results which is the sole reason nonprofit organizations exist in the first place. And now people are buying into your erroneous “rating system” and will use it and perpetuate it moving forward. People like GF Erickson who said in the comments under your crappy methodology “I found this article to be very thorough in its grading and will use it as a tool in my future donations to Charities. Thank you for such an informative article.” One Canadian donor just got dumber because of you.
So in the future, please stick to your area of expertise in how to help people make money and spend it wisely and leave the discussion on how to best give it away to someone else. Actually, even better, please continue to take an active role in promoting philanthropy and charitable giving in Canada by helping educate donors on the issues and how they can give smarter. Just educate yourself first.