One of the hallmarks of today’s philanthropy is the  watchdog-like quality held by many donors to use how an organization spends its money as a criteria for support.  Often they decide whether or not to support an organization at all  based solely on the ratio of money spent on non-mission related activities.

This is partly inspired by the easy access to information the internet has brought us.  And of course the biggest source of this kind of information beyond the IRS’ database of Form 990s is “Charity Navigator” who’ve made a whole industry of its rating system.  The fate of non-profits often rests in their hands.  And why shouldn’t donors have that kind of information?  Seems fair.  But is it the best way?

But on a recent plane trip, Carl and I passed an article from Business Week around about a new way to rate charities instead of just financials: effectiveness.  And Charity Navigator is one of the players in this new ratings system (although like anything on the web, there are many sites working on the same thing).  CN’s system “will still go from zero to four stars but will include measures of financial strength, accountability, and effectiveness.”

I think this is a much better system — especially for those orgs just starting in direct mail, for example, as they make big investments in long-term growth that the average donor might not stop to think about when faced only with a ratio that doesn’t look so hot.

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