Doggin’ the Watchdogs

    Charity watchdog groups are the bane of the nonprofit fundraiser’s existence. OK, maybe I should be more specific. They are the bane of MY existence. I welcome due diligence in giving and I value rigor in the careful management of donor funds. The problem is that watchdogs like Charity Navigator give credence to many of the wrong things all in the name of promoting “efficiency.”

    For instance, pull up Charity Navigator and you’ll see a top 10 list of charities with low-paid CEO’s. One of them has a CEO who is paid $10,000. According to Charity Navigator this is a Good Thing. As a nonprofit professional, I see this as a Dangerous Thing. How could this possibly be sustainable? Is this CEO independently wealthy? A member of the clergy? An intern? Insane? If this CEO is actually capable of spending your money wisely, why aren’t they being paid what they’re worth?

    I also see these exceedingly low salaries as a Suspicious Thing. Charities are under enormous pressure to keep overhead costs low and this leads to all kinds of “errors” in reporting. Multiple studies have shown that upwards of 35% of charities are misreporting the ratio between their administrative, fundraising and program costs.

    The Nonprofit Overhead Cost Study demonstrated that too little spending on infrastructure (including professional salaries) is eating our sector alive. The study was completed in 2004, but I cite it here because it was sweeping in its scope and its results vitally important. Here’s just one quote from the study:

    “Absent good, comparative information about program or mission effectiveness, donors and charity watchdogs often place excessive reliance on financial indicators. Of particular concern to us is the use of overhead cost and fundraising cost ratios as stand-ins for measures of program effectiveness. No organization in our study was an extravagant spender on fundraising or administration. Yet contrary to the popular idea that spending less in these areas is a virtue, our cases suggest that nonprofits that spend too little on infrastructure have more limited effectiveness than those that spend more reasonably.”

    Share this with your board and free yourself from trying to please the watchdogs. As Leslie’s recent blog showed, nobody’s using them anyway. Thank heavens!

    2 Comments

    • Greg Wright, July 14th, 2010 on 8:09 am

      Executive Director pay is such a sticky issue. I recall taking a regional monthly seminar through JVA where they cautioned attendees about start up nonprofits making the director’s salary a big part of the first year’s budget. As a result, last year when I was involved in a nonprofit starting up, we didn’t allow for the director to get a regular paycheck. We tied everything into program operation costs. Since Boulder Outreach for Homeless Overflow operates seasonally, we now have a broke Executive Director!

      That said, I have seen folks start nonprofits as way to pay themselves to do something they really love. Unless the organization is built on a cult of personality, sometimes that backfires when it comes time to explain to donors where their money is going.

    • Diana Lee, August 14th, 2010 on 12:14 pm

      The CEO of Charity Navigator has acknowledged that the metrics they use provide only part of the picture, and advised the public to look further. He has also said they are working on a way to measure an org’s effectiveness, as well.

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