What Makes a Good Charity?

By Bob Glaves  |  CBF Executive Director

The eminent Peter Drucker famously said, There is nothing quite so useless as doing with great efficiency something that should not be done at all. Mistaking efficiency for effectiveness is a danger for any organization, and particularly so for nonprofits. Yet that is exactly what most of the entities that give advice about what makes a good charity tend to do, often compounding their error by utilizing misleading standards for determining efficiency. There is a better way.

The Problem

As we enter the season of giving, you can be sure you’ll be asked by many organizations (including the CBF) to consider them in your year-end giving. Unfortunately, you also can be sure that you’ll see a lot of bad advice in the media and elsewhere about what you should focus on in determining the best organizations for your charitable dollars.

The problem with most of the stock advice that goes out this time of year is it focuses primarily (and sometimes exclusively) on the inner workings of the organization using often dubious rating scales in an attempt to determine how efficient the organization is rather than on whether and to what extent the organization is actually achieving its mission. Yet the reason most of us make charitable gifts is because we believe in the cause the organization is pursuing and want to be a part of advancing that cause.

This is not to say that you should completely ignore efficiency metrics about an organization, just that you should put these measures into the proper context and focus on whether the organization is actually any good at the work they are doing.

A Better Way

So with that in mind, here is some general advice for thinking about your charitable giving, and a few specific tips to keep in mind for evaluating whether a particular organization is worthy of your investment.

General Tips

  • Remember why you are giving in the first place. Any due diligence you are doing should be in the context of confirmation rather than cross-examination. If you feel the need to be in cross-examination mode about an organization’s worthiness, that is probably a bad sign.
  • Don’t ever give over the phone unless it is an organization you already have a relationship with and you know who you are talking to. Solicitations over the phone often come from professional fundraisers who are taking a large cut of the donation right off the top, and/or on behalf of organizations that may not be all they are cracked up to be. If you are interested in the organization making a pitch over the phone, the caller should be able to refer you to the organization’s website or follow up with information by mail. If you are getting pressure tactics to give over the phone, that is a big red flag.
  • Same advice for solicitations on the street. Dropping money in a Salvation Army bucket (which I do fairly regularly this time of year) is a whole lot different than the aggressive pitches you often see on downtown streets from overly energetic young people with clipboards in hand (which I’ll never respond to, ever).
  • Size matters. It should be a given that any organization you are contributing to is doing good work. That said, as you are evaluating an organization, you can expect a lot more information to be readily available from a large international charity than a small neighborhood food pantry. For the large international charity, key information all should be readily available on their website. For the small neighborhood charity, that generally is not reasonable to expect.

Some Helpful Evaluation Factors

With those general tips in mind, and again stressing the point about being reasonable when looking at smaller organizations, here are some things to look for if you want to know more about a nonprofit organization before donating.

  • What is the organization accomplishing? Is the organization making progress in advancing its mission? This is the do not pass go question that should be answered before spending time on any further evaluation. While there is no one size fits all measure of organizational success for every cause, a good organization should know how it defines success and be able to point to results that advance its mission. Things you might look for on an organization’s website are a strategic plan, annual report, and a blog or newsletter that gives you a sense of their current work. And if progress in advancing the mission is not apparent on the website, you should feel free to ask them.
  • How transparent is the organization about its governance? For established organizations, you should be able to easily find out about the board and staff leadership on their website as well as more specifics about the nature of their work and operations.
  • Does the organization receive funding from reputable foundations?  Foundations like the CBF do significant vetting of organizations before giving a grant, and you generally can take that as a sign the organization is reputable and doing good work.
  • Guidestar.org as a resource.  Guidestar is a great resource to do a quick check on an organization to make sure it is in good standing and to find out more about the organization’s finances and operations if you have questions on those issues that aren’t apparent on the organization’s website.
  • How to use those overhead ratios. So-called overhead ratios and other similar efficiency ratings too often are misused as scorecards for organizational effectiveness, but they can be useful for spotting red flags. Overhead is shorthand for the investments that any organization needs to operate successfully people, space, computers, supplies, etc. Without sufficient investment in overhead, a nonprofit will be hard pressed to be effective in its mission, and you should not assume that just because an organization has a lower overhead ratio they are a better organization; in fact, the reverse may be true. (A great article in Forbes a few years ago, Charity Isn’t Cheap, makes that point well).

So long as an organization reports an overhead ratio in the 10-50% range, there generally is no reason that should set off any alarm bells if they stack up well on the other factors. Where exactly a particular organization falls in that overhead range depends as much on their size, their funding model, and the nature of their work as anything else. While there is not an exact corollary for the business sector, overhead rates in the for profit world average around 25% and typically range from 20% to as much as 50% depending on the type of business, and that provides some context to think about nonprofits too.

If an organization reports an overhead ratio of more than 50% or less than 10%, it is not necessarily disqualifying but should cause you to raise additional questions. Too little overhead can be just as bad a sign as too much, as it may be a sign the organization is not making the necessary investments in its people and infrastructure.

Give Until It Feels Good

As I conclude, I want to note that the CBF typically rates very highly on the efficiency scales that Charity Navigator and many others emphasize in their ratings. For all the reasons noted above though, that is not why I would hope you support the CBF. Rather, if you believe that the justice system should be fair and accessible to everyone regardless of their income or circumstances, I hope you support the CBF because you believe we are doing a solid job of advancing that goal and your support is helping to make that possible.

Any nonprofit worth its salt would tell you the same thing. All good nonprofit organizations rely on the partnership and support of their donors to make their work possible, and as an added bonus giving has even been proven to be good for you. So with the above tips in mind, give generously as you close out the year, and it will make for a happier holiday season both for you and those you are so generously supporting!