December 14, 2010
In the past, I have done my charitable giving according to a very strict process.
When did I give? I gave pretty much every time a friend asked me for money on behalf of a nonprofit, unless a lightning strike temporarily erased my short term memory, or a pigeon flew through my kitchen window and started crapping on the dishes. (One of these two events actually happened this week.)
How much did I give? I usually gave between $10 and $100, unless it was a Sunday, Tuesday or Thursday, unless the sun was shining, unless it was an odd day of the month, and unless the wind was blowing. It's all very scientific.
The truth is that I have given money about as irresponsibly and erratically as a monkey with a wad of bills.
The problem with this giving strategy is that not all nonprofits are created equal, and while intentions are almost universally good, results vary tremendously. Some nonprofits are ten times more effective than others, but you and I don't know how to tell them apart, because unlike businesses, nonprofits don't file 10-Ks or go out of business when their customers aren't happy. So long as they know how to raise a buck, they keep on chugging. (And with monkeys like me out there, this is not necessarily difficult.)
What can we do to ensure that we are giving responsibly, without making nonprofits submit a ten page grant application in exchange for our twenty dollars? Here are a few things that I can consider in about ten minutes, to decide whether and how much to contribute.
First, evaluate their people. The quality of the management team of a nonprofit is usually a great indicator of the quality of their work. Check out the bios of the leadership team, and if they don't tell you much detail, then there might not be much to tell. If you have a friend or colleague who has an association with the organization, consider how much you would trust that person to spend your money effectively. Jim Collins articulates this concept in his landmark book, Good to Great, which says that the first step to building a great organization is to "get the right people on the bus". This is true for nonprofits.
Second, look at the quality of their other donors. Because of the huge variation in nonprofit performance, most of the foundations I've worked with are spending a lot of time and energy evaluating which causes to support. (I know this because I've answered their questions.) Without doing this diligence yourself, you can see whether a major foundation or philanthropist has supported the cause by checking out the nonprofit website's "supporters" page or their Annual Report. If you don't recognize the names, try using your search engine of choice. Searches on their top donors should always turn up unambiguous information within the top 5 results (or higher).
Third, look for serious and sensible efforts to measure impact. Responsible nonprofits know the perils of working without assessing results, and devise metrics to give them feedback on how they are doing. Be wary of nonprofits which focus only on how many people they serve, or how many centers they operate. Look for metrics which talk about how well they served those people: What percentage of 9th graders entering the high school went to four-year colleges? How many grade levels did math scores increase during the summer program? How much did malaria contraction rates fall in the user group? Even if you don't know exactly what the results mean, you can and should distinguish between good and bad metrics. Mature nonprofits should be consistently reporting these metrics on their website and in periodic updates such as annual reports or impact reports.
By the way, one common misconception is that direct program expenses should approach 100 percent. Unless the ratio of direct expenses to overhead is WAY out of whack (like 50-50), investing in overhead can be a good thing, if done responsibly, such as building efficient IT systems or hiring more talented and experienced managers. Nonprofits go out of their way to hide overhead costs so that they can run campaigns saying "Every penny of your donation goes to a child in need." That's because some board member put up a few million bucks to pay for the office space and power bill, and the salaries of the support team, which are essential but not very sexy things to ask your donors to pay for. Don't penalize nonprofits because they invest in organizational development – odds are your money will actually go further in the long run with these nonprofits.
Happy holidays everyone. Party – and give – responsibly.