Fixating on charity ratings

A recent Wall Street Journal article offered a whole section's worth of advice to people looking to give money at this time of year. The first article was about ten of the most common mistakes that philanthropists make. An interesting list. But this one in particular caught my eye:

7. Fixating on charity ratings.

With nearly two million charities, it can be hard to know which ones are the most efficient and effective in the causes they support. Over the years, a number of websites, such as CharityNavigator.org and GuideStar.org, have sprung up to help donors evaluate a charity's administrative, program and fund-raising expenses. While it's important to look at the ratings, nonprofits have become experts in gaming the rating system. For instance, groups have been known to disguise fund-raising mailings as educational materials and pass fund-raising costs along as program expenses.

Meanwhile, some groups end up getting dinged in the ratings when they may not deserve it. For instance, you shouldn't pass on a charity just because it seems to have high overhead; groups such as food banks may have higher administrative costs, since they provide direct services to needy people.

Also, don't avoid giving to a charity only because a CEO makes over $100,000. The median CEO salary for charities with total expenses between $3.5 million and $13.5 million is nearly $160,000, according to Charity Navigator.

"Just like in any business, donors can't ignore the necessary administrative costs nonprofits have to efficiently and effectively deliver services," says Chris Page, senior vice president of Rockefeller Philanthropy Advisors.

Pick up the phone and ask nonprofits to explain the numbers behind the ratings. Ask to speak to the chief executive or financial officer and ask about specifics, such as where certain donations go or about high administrative costs and salaries.

This actually sounds a lot like the college rankings issue. It is great to have these tools to evaluate and narrow down which philanthropies you want to consider, it is important to realize that different charities have different needs. And that things like having a CEO who makes over $100,000 shouldn't disqualify you. Maybe the CEO is so competent he deserves a high salary. As with college rankings, it's probably true that the more of these tools that spring up, the better. So each donor can figure out what is most important to him.

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