GuideStar Blog

Three Cups of Tea – Part III

 

It will take some time to learn if the recent issues concerning Greg Mortensen are the result of the failures of a charismatic founder or something worse. But this whole affair points out the difficulties – as well as the urgency – in finding better ways of understanding nonprofit performance and effectiveness.

I’ve had a number of reporters ask whether GuideStar could have done more to discover problems with CAI. For now, going into the field for an in-depth analysis just isn’t possible except for some large foundations. But GuideStar has in its database what we believe are most of the indicators or predictors of a likely outcome. Others have suggested that giving to a nonprofit is so complicated that donors need more help in making decisions. Isn’t reviewing a charity’s documents too much work to ask a donor, one reporter asked me. To the contrary, I think a donor should be diligent about their giving and make some effort to learn before their give. While it’s unreasonable to try to boil an organization down to one number, we are certainly striving to make it simpler and easier to understand a nonprofit’s work.

Let’s also not be too hard on the nonprofit sector at this point in our maturity in developing better analysis. Some have suggested that the nonprofit world needs ratings “just like they have in the for-profit world to help guide decisions.” These ratings services – say the critics – do deep analysis, take the risks out of investing, and identify the companies that are likely to be the high performers. Of course, we know this isn’t always the case. Example number one is the housing crash and resulting recession of 2007-2009. All three rating agencies admitted there were significant mistakes in the rating of structured finance products. A BBC report on the recession had this interesting disclaimer: “The ratings agencies said that credit ratings were just one factor that investors should look at when making investment decisions, but admitted that less sophisticated investors may have been over-reliant on their assessments.” And there are a host of other problems with ratings: who pays for the ratings, grade inflation, and how long a period of time the rating is effective.

As for the current crop of nonprofit raters, I think the biggest problem is that they are raising false expectations by giving an organization a single rating and implying that they are providing all the necessary details of that organization. They aren’t. In fact, the ratings currently being awarded to organizations are based primarily on a few financial metrics. Wouldn’t a little truth in advertising serve them – and donors – better by publicly stating that the rating is based on a small number of metrics – and is really only a very small glimpse into the organization’s operations.

For now, I think our approach at GuideStar serves donors well, although still needs improvement:

  1. We provide as much data as we can on an organization from as many points of view as possible, focusing first on mission and programs before finances. We had a considerable amount of data on CAI.
  2. We recognize the personal nature of philanthropy and urge donors to identity their values and priorities before they make a decision.
  3. Within their areas of interest, we encourage donors to find organizations that can answer the questions of what an organization does, how they do it and how they measure success.
  4. After these three steps, the giving decision still requires a donor to make a decision based on trust. GuideStar can give you the parameters, we can give you red flags, we can even give you comparables to similar organizations. But we will never be able to give you a one hundred percent guarantee that everything will work out perfectly.

Over the last decade GuideStar has done much to improve the nonprofit sector’s commitment to transparency and accountability. Now we’re turning our attention to issues like capabilities, effectiveness, and impact. We want more and more donors to “know before they give,” researching the things that are important to them, and giving with both their hearts and their heads. This will not always be easy, and it may not always dig out the full story, but it is worth the effort to make sure our dollars are being used as effectively as possible.

Bob.jpgThe preceding is a guest post by Bob Ottenhoff,  Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.

Topics: Impact GuideStar CAI
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