Americans are very generous people. Indeed a study revealed that 89% of Americans donate to charities annually, giving about 3% of their income or $1600 a year. But are these non-profits investing most of that money into the actual charity--or spending it on administrative costs and fund raising?
Several websites help donors choose a charity based primarily on how much the non-profit actually provides to causes. Charity Navigator (www.charitynavigator.org), based in Glen Rock, NJ and launched in 2001, has emerged as a leader. Indeed it serves over 5 million unique visitors annually and tracks 5,500 of the U.S. largest charities.
Other sites that concentrate on philanthropy include Great Nonprofits (www.greatnonprofits.org), Philanthropedia (www.myphilanthropedia.org), and Give Well (www.givewell.org). Great NonProfits operates more like Yelp (an online service boasting: “Real People. Real Reviews”), publishing consumer feedback on charities. Starting in early 2011, Charity Navigator was forming a partnership with Great Nonprofits, publishing its readers’ comments and feedback on its site.
The mission of Charity Navigator is to “help donors make informed giving decisions,” explained Sandra Miniutti, its vice president of marketing. After entrepreneur Joe Dugan sold PDI Inc., the pharmaceutical company that he started, he became a philanthropist. He realized that most people don’t have the time to research charities, and tried to fill that void with the web site.
Charity Navigator is organized into Home, Methodology, Tips, Studies, Articles, and Products. Moreover, donors can identify charities by specialty, including Animals, Arts, Education, Environment, Health, Human Services, International, Public Benefit, and Religion. Taking a page out of David Letterman’s show, the site produces its own top 10 lists, including the 10 Most Respected Charities, 10 Least Reviewed Charities with High Ratings, 10 Charities Expanding in a Hurry, and 10 Charities in Deep Financial Trouble.
For example, one Top 10 article revealed that charities receiving four-star ratings over the most consecutive periods included Center for Budget and Policy Priorities (which clearly lives up to its mandate), The Children’s Aid Society, and Compassion International.
Users of Charity Navigator are mostly donors, ranging from the affluent to working class. But corporations and foundations also visit to assess how charities are doing, and philanthropic leaders benchmark how their non-profit is doing versus its peers. The majority of users are wealthy, middle-aged women because it’s mostly females who make the charitable decisions in their family.
The site is free to all users. To maintain objectivity and avoid any ethical conflicts, Charity Navigator does not accept any donations from charities.
When the site first debuted, many charities were defensive and tried to discourage Charity Navigator from publishing any data about them, though that data was public information. “Since 2002, charities have come to accept that they’re going to be evaluated,” Miniutti said. Now the conversation has shifted to adjusting how they are rated.
Its ratings generate the most interest and buzz. For the most part, the zero- to four-star ratings depended on what percentage of contributions the non-profit provided to the cause versus administrative and fund-raising costs and the non-profit’s financial stability.
Miniutti said most charities spend about 75 percent of contributions on programs and the remaining 25 percent on fundraising and administrative costs.
But each charity is different and she pointed out that museums have higher costs because of expensive security requirements compared to food banks, for example. Overhead costs are figured into the ratings, so it’s not as simple as non-profits that spend 80 percent on programming get four stars and those that spend 65 percent receive two stars.
The site has also garnered attention because it publishes salaries of non-profit CEOs. Though the average CEO earns $150,000, some earn $750,000 and more, which has triggered some negative publicity for charities.
Critics have questioned the site’s rating system. Sean Stannard-Stockton, a philanthropic consultant, told the New York Times in November 2010 that Charity Navigator had become the standard for people choosing a charity and “that was detrimental to the non-profit sector.” Charities were cutting back on administrative costs, reducing investment in technology, and not hiring experienced staff to reduce costs. Hence, non-profits were losing their competitive edge and becoming stale.
Sensitive to this criticism, Charity Navigator is adjusting its ratings. In 2011, it plans on incorporating criteria that analyze the charity’s effectiveness. Charity Navigator CEO Ken Berger said it’s responding to its audience since 85 percent of its users surveyed “thought knowing something about a charity’s effectiveness was important.”
But Charity Navigator doesn’t have the resources to hire staff to review 5,500 charities and therefore must find cost-effective ways to evaluate them. It will train an “army of volunteers and graduate students” to evaluate charity’s effectiveness, says CEO Berger. Its new rating system will be based 33% on financial health, 17% on accountability, and 50% on results, though it hasn’t made it clear how it will judge results.
One charity that readers won’t learn about on Charity Navigator is the Salvation Army. Though it is one of the largest non-profits in the U.S., it is listed as a church and doesn’t submit the IRS 990 form.
“The good news is that most charities are doing a great job and strive to be efficient. Donors shouldn’t be afraid to donate but should think through where they put their dollars,” Miniutti said.
Gary M. Stern is a freelance writer based in New York City.